Sweet and sour spreads for crude oil and refined products are expected to widen significantly
The International Maritime Organization (IMO) will cap the sulfur content of fuel at 0.5pc, down from 3.5pc today, in January 2020. Vessels can install scrubbers to clean exhaust gases, convert to LNG or switch to lower-sulfur diesel to comply with the International Convention for the Prevention of Pollution from Ships (Marpol).
Over 3mn b/d of high-sulfur fuel oil (HSFO) demand will need to be replaced by other sources, according to Argus estimates discussed at theArgus Marpol Strategy Summit in Houston today.
The rules will dramatically boost the premium that sweet crude and refined products carry versus their heavier, more sour counterparts.
Spot prices for Mexican heavy sour Maya and other crudes containing more than 3pc sulfur, like Western Canadian Select (WCS), are forecast to plummet to discounts to light sweet North Sea Dated as wide as $30/bl in 2020, Argus consulting data shows. US medium sour Mars, which has a 1.81pc sulfur content, is expected to reach a roughly $10/bl discount to North Sea Dated.
"Spreads are going to widen. The real question is for how long," Argus senior consultant Edward Arnold said. Meanwhile sweeter crudes like Nigerian Bonny Light and Algerian light sweet Saharan Blend could draw wider premiums, he said.
Only 10.4mn b/d, or just 13pc of global crude oil production, comprises medium and heavy sweet crudes, while over 35pc is medium sour, he said.
Maya stood yesterday at a $14.59/bl discount to North Sea Dated. WCS at Houston, Texas, was assessed at a $9.83/bl discount to Dated, and Mars was trading at a $5.67/bl discount to the European light sweet crude marker.