London — Algerian low sulfur straight run fuel oil has found increased demand as part of the 0.5% marine fuel blending pool, following the introduction of the IMO 2020 global marine fuel sulfur cap which started January 1, 2020.
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The product typically has a lower sulfur content and density than LSFO, making it a prime candidate for blending into the 0.5% marine fuel pool. This has led to atypical arbitrage routes toward Singapore. Before IMO 2020, LSSR would traditionally head to the US, particularly during summer months for blending to produce gasoline.
FOB Northwest European LSSR cargoes were assessed at a $10/b premium to ICE March Brent crude futures on Tuesday, S&P Global Platts data showed. That's up from a $7.40/b premium on January 2 and a discount of $1.40/b in January 22, 2019.
Approximately 400,000 mt/month of LSSR is exported from the 335,000 b/d refinery complex at Skikda, Algeria, which is now finding a home in the more competitively bid Singapore where there are tight supplies of 0.5% marine fuel oil.
The aframax Minerva Astra is taking LSSR from Skikda to the east on January 30, according to shipping sources.
"Pretty much all the LSSR is going into the 0.5 blending pool," a trading source said.
"I think at the moment most LSSR stays in the region for blending. The arbitrage to the US is shut both for HSVGO and LSVGO/LSSR, the only thing that works to the US is HSSR at the moment," a second source said.
A tug of war has emerged between Singapore and the US, along with other countries willing to pay more for the product.
Sources have previously cited a significant difference in the value of LSSR depending on the sulfur content, with lower sulfur products commanding much higher values. Differences of 0.1% have previously said to have cost as much as an additional $15.00/mt, according to one source.
"I do not think it makes much sense on FCC at the moment," another source said. "Levels are too high vs where gasoline is."
With the introduction of IMO 2020, vessels can no longer use the prevailing marine fuel of choice, 3.5% sulfur fuel oil, unless they have an exhaust gas cleaning system fitted.