SUBSCRIBER NOTE: Platts proposes to amend USGC 1% fuel oil methodology

S&P Global Platts proposes to amend its methodology for assessing US Gulf Coast 1% fuel oil barges, with effect from December 1, 2018, because of evolving dynamics in the fuel oil market.

Following a detailed review of the market relationship between the paper and physical high sulfur and low sulfur fuel oil markets in the US, Platts proposes to assess the value of No.6 1% USGC fuel oil barges by applying a differential -- based on the front month "hi-lo" spread in the US fuel oil paper market -- to the value of high sulfur fuel oil barges on the Gulf Coast.

Platts intends to establish this differential by calculating the front month "hi-lo" swap spread -- a key derivative indicator in the US fuel oil market which reflects the differential between the front-month No.6 1% New York Harbor delivered fuel oil swap and the front-month USGC HSFO swap -- and multiplying this by a factor of 1.53 to reflect the historically higher relative value of 1% fuel oil in the physical Gulf Coast market. The differential would be applied to the value of USGC HSFO barges to get the value of No.6 1% USGC fuel oil barges basis FOB Houston.

As a result of this change, Platts will no longer publish bids, offers or trades for the No.6 1% USGC fuel oil barge market during the Platts Market on Close assessment process starting December 1.

Platts is proposing this change because of the diminishing use of 1% fuel oil for power generation, which was the primary end-use of this product on the Gulf Coast.

The No.6 1% USGC fuel oil assessment has historically reflected utility-grade fuel oil in line with Florida Power & Light specifications for maximum 1% sulfur fuel oil for delivery to Manatee and Port Everglades, with the exception of gravity of minimum 6 API and Al+Si metals content of maximum 80 ppm. FPL's No.6 fuel oil specifications have since evolved to a maximum 0.7% sulfur fuel oil currently. In the more liquid LSFO market on the USAC, the 1% fuel oil grade is primarily used as a blending component for RMG.

Below is an example of how the value of No.6 1% USGC fuel oil barges (PUAAI00) would be assessed under the proposed change:

*USGC HSFO barge (PUAFZ00): $70.00/b *M1 USGC HSFO swap (PUAXJ00): $70.00/b *M1 FO No.6 1% NYH swap (PUAXD00): $72.00/b

Based on the above assessments, Platts would multiply the front month "hi-lo" paper spread of $2/b by 1.53 to get a differential of $3.06/b. This differential would then be added to the USGC HSFO barge assessment, to get a value of $73.06/b for No.6 1% USGC fuel oil on that particular day.

Platts will continue to regularly review market dynamics regarding its No.6 1% USGC fuel oil assessment, particularly following the launch of 0.5% marine fuel assessments at key hubs including Houston in January 2019 ahead of the planned introduction of new sulfur limits for marine fuels by the International Maritime Organization from January 2020. Platts will provide timely notifications on any possible further change to its No.6 1% USGC fuel oil assessment.

Please send all comments, feedback and questions to americas_products@spglobal.com and pricegroup@spglobal.com by November 15.

For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available upon request.