Europe high and low sulphur fuel oil price gap highest in two years

15 March 2011 14:24  [Source: ICIS news]

LONDON (ICIS)--Increased demand for low sulphur fuel oil, caused by events in Libya and Japan, has caused the price difference between it and high sulphur fuel oil to reach levels not seen in Europe since November 2008, sources said on Tuesday.

ICIS data showed that the differential had changed considerably in just a month.

On Tuesday morning, low sulphur (1%) fuel oil was around $672/tonne (€484/tonne) FOB (free on board) ARA (Amsterdam-Rotterdam-Antwerp), while high sulphur (3.5%) fuel oil was trading around $593/tonne FOB ARA.

On 15 February, 1% material was around $576.50/tonne FOB ARA and 3.5% around $564.50/tonne FOB ARA.

According to ICIS data, on 20 November 2008, 1% fuel oil was at $267-271/tonne FOB ARA, and 3.5% fuel oil was at $196-200/tonne FOB ARA, resulting in an average difference of $71/tonne.

For several months before the start of the uprising in Libya, there had been little price difference between 1% and 3.5% material. On average, the difference was around $10/tonne.

Around three weeks ago, the difference began to widen. Despite Libyan-driven crude oil price hikes exerting upward pressure on both types of fuel oil, 1% material experienced greater price increases and saw demand improve.

“It’s due to the shortage of product from Libya," a source said last week. “People want to be sure they have enough material.”

The massive earthquake and tsunami that hit Japan on 11 March, and the explosions at a nuclear power plant that followed, have further increased demand for low sulphur material and widened the difference between the two grades.

"Libya was already incorporated into the differential," a producer said on Tuesday. “Japan has increased things.”

This was largely due to the explosions which have occurred at the Fukushima Daiichi nuclear plant.

“People in Asia are looking at alternatives to nuclear fuel," a producer said. “I don’t know too much about the Asian market, but the first substitutes for nuclear are gas, low sulphur fuel oil and coal.”

This extra demand had left the European low sulphur market tight.

It was possible that high sulphur material could be used if supplies of low sulphur were not available. The lower price of high sulphur material could also benefit buyers.

“They could use it if they had to, but they still prefer low sulphur material," the source added.

It was said that falling crude oil prices would exert downward pressure on fuel oil figures, making both types of fuel oil more affordable.

“The market is very nervous, though”, a trader said. “People are only buying what they need to.”

At 12:50 GMT, April Brent crude oil was trading at $109.37/bbl.

($1 = €0.72)

By: Jo Pitches
+44 208 652 3214

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