- Demand for the oil used in fuel oil blending has slowed, causing spot premium for Australian Van Gogh crude oil for loading in October drop this week.
- Australian producer Santos sold a 300,000-barrel cargo of the heavy, low-sulphur, or sweet, grade for loading on Oct. 3-7 to Japanese trader Mitsui & Co at $8 a barrel.
- A September-loading Van Gogh crude cargo was traded at a premium of more than $12 a barrel, the highest premium recorded for the grade.
- Van Gogh Crude are called heavy sweet as they have a higher density and contain less sulphur, convenient to blend directly with HSFO to create VLSFO.
- Traders have stocked enough oil to meet initial demand from shippers.
The spot premium for Australian Van Gogh crude oil for loading in October dropped this week, reports Reuters.
What was the reason?
According to trade sources, demand for the oil used in fuel oil blending has slowed, causing the spot premium for Australian Van Gogh crude oil for loading in October drop this week.
Santos sales to Mitsui
Australian producer Santos sold a 300,000-barrel cargo of the heavy, low-sulphur, or sweet, grade for loading on Oct. 3-7 to Japanese trader Mitsui & Co.
The premium was about $8 a barrel to dated Brent, said the sources who track the oil’s trade closely.
Previously, a September-loading Van Gogh crude cargo was traded at a premium of more than $12 a barrel, the highest premium recorded for the grade.
Heavy sweet crude for VLSFO
Oil traders have been snapping up Australian heavy sweet crude since late in the second quarter to create very low-sulphur fuel oil (VLSFO) to meet shippers’ demand later this year.
The International Maritime Organization has issued rules mandating that ships use fuel oil with a sulphur content of 0.5% from the current 3.5% starting in 2020.
Why this sweet crude is preferred?
Crudes such as Van Gogh are called heavy sweet because they have a higher density relative to other grades and contain less sulphur.
Traders blend these crude directly with high-sulphur fuel oil to create VLSFO.
Stocked up oil to meet demand
The easing of spot premiums for such oil indicate that most traders may have stocked up enough oil for now to meet initial demand from shippers, one of the sources said.
“The conversion is going to start from early fourth quarter. Most shipowners are going to start using low-sulphur fuel oil to clear their stocks to be IMO-compliant from day one,” he said.
Heavy crude demand hit
A plunge in fuel oil margins has also hurt demand for heavy crude, the sources said.
Asian refining margins have tumbled more than 50% since mid-July, driven by free-falling fuel oil margins due to sluggish demand and China’s high levels of fuel production and exports.
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Source: Reuters
