Marine Diesel Oil Price-Spike Expected End of 2014

Reuters – New fuel rules for ships entering low sulphur zones around northwest Europe and North America next year could trigger a price spike in European gasoil, whilst refiners will struggle to offload unwanted fuel oil.

From January 2015, ships entering "Emission Control Areas" (ECAs) in the Baltic, North Sea and English Channel and around the North American coast, will have to switch from low sulphur fuel oil (LSFO) with 1 percent sulphur content to 0.1 percent gasoil, in a crackdown on marine pollution.

Industry experts believe shipowners will opt for gasoil rather than using exhaust filter systems known as scrubbers or alternative fuels such as liquefied natural gas (LNGLF) (LNG), because of high investment costs, long payback times, and the lack of suitable port infrastructure.

Gasoil currently trades at around a $300 premium to LSFO on a flat price basis.

"Most ships will move to marine gasoil in 2015," said David Wech, an analyst at JBC Energy. He sees demand for gasoil growing by 135,000 barrels per day (bpd) in northwest Europe and 105,000 bpd in the United States. Demand for fuel oil will fall by 120,000 bpd and 90,000 bpd respectively.

This could prompt a short-term price spike in gasoil, similar to that in August 2012 when North America's ECA first came into effect, mandating a switch to 1 percent LSFO. Although this was flagged well in advance there was a run on European LSFO from June, peaking in mid-September.

Source: Reuters