05 May 2020 | 18:42 UTC — Insight Blog

Middle East refined products pricing under the microscope as freight rates soar

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Featuring Daniel Colover


Global action to halt the spread of coronavirus has crushed demand for transportation fuels, especially jet fuel and gasoline.

The imbalance in the oil market, in the most extreme example, caused US WTI NYMEX crude futures to plunge as low as $37.63/b on April 20, highlighting the key role of storage – or lack thereof – in today’s crude market.

In refined products markets, the slump in prices has led traders to store products on ships as land-based storage fills up. This includes storage in Singapore and Fujairah.

In the clean tanker market, the sharp rise in the cost of fixing a Long Range vessel to move 55,000 mt of clean refined products from the Arab Gulf to Singapore is illustrative of the surge in demand for floating storage. The spot rate for this voyage hit a record high of $70.92/mt on April 24, easing only slightly by May 4 to $65.69/mt. In contrast the rate on the same route averaged $17.66/mt in 2019.

Disentangling freight and product value

These higher freight rates are not only impacting flows of refined products; they are also having a knock on effect on the freight netback assessments used in the Arab Gulf, which are a calculated assessment of the price of refined products in Singapore minus the freight between Singapore and the Arab Gulf.

S&P Global Platts Middle East products assessments, also known as FOB Arab Gulf, or MOPAG, are structured in this way and have been widely used by Gulf refiners for pricing their output since the 1980s.

In the past weeks the sharp fall in refined product prices coupled with higher freight rates has led to a plunge in the price of these netback assessments.

For example the jet/kerosene MOPAG Platts assessment fell to a record low of $5.06/b on April 22, led by the higher freight rate, and a slide in the price of jet/kerosene in Singapore. Looking at how this price was assessed, $13.06/b was the price FOB Singapore, and the freight netback was $8/b.

Middle East refined products pricing

The freight netback prior to the current market was a far lower proportion of the overall price, averaging $2.19/b, with the Singapore price for kerosene averaging $77.25/b. This led to MOPAG jet/kerosene in 2019 being assessed at an average of $75.05/b.

These are not the only assessments that Platts makes for refined products in the Gulf, and there has over time been a growing call for products pricing that follows local markets more closely.

Platts launched FOB Fujairah prices for fuel oil, diesel, jet fuel and gasoline in late 2016. These are prices representing not a netback from Singapore, but the outright spot value of a cargo loading in Fujairah.

These prices are independently assessed, and therefore react to the dynamics of product markets in the Gulf. While they have been under pressure as well due to demand contraction, the price declines have not been as severe in recent weeks.

The FOB Fujairah price of jet/kerosene fell to a recent low of $9.47/b on April 28 and while it represents a sharp fall from the average price of $76.67/b seen in 2019, it was almost double the price of the MOPAG jet/kerosene assessment on the same day, of $5.41/b.

While we cannot know how prices will perform in the future, what we do know is that many vessels currently chartered to store refined oil products will not be available for new fixtures until they are discharged, which could be for many months ahead.

Platts publishes both netbacks and independent prices to reflect values of products in different locations.

Indeed, as prices are now at low levels, scrutiny will be higher than ever and market participants will be looking closely in the days and weeks ahead at the pricing options available to them.

Platts is also actively monitoring and consulting with the market to ensure that our assessments reflect market value.


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