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Singapore fuel oil derivative instruments continue to price in IMO regulations

Singapore fuel oil derivatives traded on the Intercontinental Exchangecontinue to show signs of pricing in the International Maritime Organization,or IMO, 2020 regulations with strong interest shown for bids and offers ofcontracts as far forward as 2020.

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Bids for the January 2020 viscosity swap spread -- the relative strengthof the 180 CST fuel oil grade over the 380 CST fuel oil grade -- stood at$20/b late last week, while offers were at $25/b, indicating that the 180 CSTgrade is valued at least $20.01/b over the higher viscosity 380 CST gradefuel.

Viscosity spreads for the front-month paper was assessed at $7.50/bFriday, according to data from S&P Global Platts. The spread averaged at$6.35/b for the month of February.

This signals how the market values lower viscosity grades against higherviscosity grades as the industry prepares itself for the regulations set byIMO going into 2020, market sources said.

"More interest seen for quarterly and annual spreads for viscosity as wego into 2019. Last week, Q4 2019 spread was around $19.50/b, " aSingapore-based source said.

The IMO is due to cut the global bunker fuel sulfur limit to 0.5% at thestart of 2020 from 3.5%, forcing shipowners to either switch to using cleanerbut more expensive fuels or install equipment to clean their emissions.

Apart from the viscosity spread, the late 2019 quarterly timespreads for380 CST fuel oil on ICE also show bids as high as $40/b, with offers standingclose to $50/b.

In comparison, Platts had assessed the Q2/Q3 2018 timespread for 380 CSTfuel oil grade at $3.63/b, while the Q3/Q4 2018 spread was assessed at $5.77/b last Friday, Platts data showed.

Apart from the fuel oil forward curve, the quality spread for first-lineBrent crude futures against first-line Dubai crude futures for 2020 widened toan all-time high of $5.17/b early last week, indicating the market valuationfor the sour crude grade going into 2020.

The spread was assessed at $5.08/b last Friday.

The contract, which is a monthly cash-settled futures based on thedifference between the ICE daily settlement price for first-line Brent and thePlatts daily assessment price for prompt Dubai, indicates the premium that thelight sweet Brent crude grade commands over the medium sour Dubai grade.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com