Oil Through the Looking Glass 30/6/20

*HSFO – The Comeback Kid*

When the IMO 2020 regulation came into effect at the start of the year, people had previously predicted that the old grade HSFO would be in oversupply and collapse in price. What has actually come about is a story of great strength and versatility of the old grade fuel. HSFO has found demand as a blend stock especially in Europe and the US. The US imported 53.98 million bbls from November 2019 to Jun 2020, nearly double what had been imported the same period the year before. HSFO suppliers like Russia and Mexico have increased their exports, both doubling their shipments to the United States. Demand for power generation using the higher sulphur fuel has also driven up prices, especially from countries like Saudi Arabia who usually cause a summer spike.

 

*OPEC Cuts Actually Happening*

Petro-Logistics – a tanker tracking company – has noted from its data that it estimates that the oil cartel has cut some 1.25 million bbls per day in June. The main cuts have come from Iran, Venezuela and Libya, with less coming from Saudi Arabia, Angola and the UAE.

 

*Hedge Funds Turn Back Tentatively Bullish*

Money managers increased their long positions on oil contracts last week according to Reuters. Positions have moved from 282 million barrels the previous week to 626 million, but this is down from the 970 million of pre-virus January.

 

*New Blending for VLSFO*

The virus has caused a collapse in the demand for transportation fuels as people have been quarantined across the globe. In Europe the collapse in price of low sulphur vacuum gasoil has led the industry to find alternative uses for the fuel. Prices of VGO have hit lows not seen since the start of 2002, with Platts noting that on April 27th spot was at $134.75. To take advantage of these low prices and VGO’s abundant availability the industry has turned to blending it to create VLSFO, a product that is enjoying much higher prices.

 

*BP Sells Arm*

Not a literal arm, but BP has agreed a $5 billion deal with Ineos to sell its global petrochemicals business. This has meant that BP has hit its $15 billion assets sales target ahead of schedule but is pulling out of a sector widely considered the main driver of oil demand. This has taken the industry a bit by surprise, but shares rose 3% yesterday after the news