In view of OPEC’s production cuts in 2019 (Iran sanctions, Venezuela’s production decline) and Russia’s declining global fuel exports, fuel oil supply continues to be on the decline. In anticipation of IMO2020, there has been an acceleration of global refineries upgrade. As global fuel output rate is declining, there is a high probability that the global fuel oil supply will decline before 2020.
Due to the weakening global economic growth, the shipping industry has been slowing down. In 2018, the quantity of scrapped large vessels peaked due to the ongoing US-China trade war. As a result, many of the trades were affected. The Brumadinho dam disaster and the typhoon in Australia also played a role in the reduced fuel demand. These factors resulted in a slowdown in fuel demand.
In Summary, fuel oil demand in the Middle East remains the highest in the Summer. Also, we expect a sharp decline in fuel oil supply from Middle East to Asia in June. When IMO2020 kicks in, we will expect a changeover from HSFO to LSFO and the Fuel Oil supply is likely to see a sharp increase. However, the long-term forward curve indicates that a turnaround in demand for HSFO may still be possible. The situation remains uncertain and may still require close monitoring.