Biden Iran stance could improve scrubber economics

Market: Oil products
09/11/20

The US' possible return to the Iran nuclear deal under president-elect Joe Biden — and a likely increase in Iranian high-sulphur residual fuel oil supply that would follow — may make vessel emissions scrubber investments more economic.

Biden's victory creates an opportunity to resurrect the Iran nuclear deal, by removing sanctions re-imposed by president Trump in August 2018. While it may take several years to occur, more Iranian high sulphur fuel oil (HSFO) would drive down HSFO prices compared with the price of very low-sulphur fuel oil (VLSFO).

The VLSFO premium over HSFO is a metric used by ship owners deciding on investments in scrubbers that allow them to burn cheaper HSFO and remain compliant with the marine fuel sulphur cap which was lowered from 3.5pc to 0.5pc on 1 January by the International Maritime Organization. The wider the VLSFO to HSFO price premium, the shorter the scrubber investment payoff time.

Data from the oil analytics firm Vortexa showed that Iran exported 13.5mn metric tonnes (t) of residual fuel oil in 2017, prior to the 2018 sanctions. Iran exports were down to 9.7mn t in 2019 and are on track to reach about 5mn t in 2020. In the first ten months of 2020, more than half of Iran's residual fuel oil was exported to the UAE. Other destinations included Singapore, Malaysia and Syria.

In Singapore, the biggest bunkering port in the world, the monthly average VLSFO over HSFO premium in August-October ranged at $61.20-60.50/t, down from $295.8/t in January, according to Argus assessments. VLSFO availabilities improved in the second quarter of the year as suppliers have been using cheap light cycle oil, low-sulphur vacuum gasoil and diesel to make blends of VLSFO.

HSFO cargo supplies have been tightening as refineries cut runs to accommodate low demand for jet fuel, which has also curtailed production of HSFO. Iranian HSFO would ease availabilities.

Biden's likely diplomatic approach to Tehran may also be mirrored in a more flexible US stance towards Venezuela — formerly a source of US HSFO. US efforts to topple Venezuelan president Nicolas Maduro are fading ahead of national assembly elections in December. Sanctions would not disappear under Biden, but he may broaden the sanctions exit route to give Maduro and his military backers more incentives to hold a credible ballot. Venezuela exported 8.6mn t of residual fuel oil in 2018, of which 2.9mn t to the US, Vortexa data showed. Total Venezuelan residual fuel oil exports were down to 4.3mn t in 2019 following US sanctions. In 2020, nearly half of Venezuela's fuel oil exports went to Singapore, followed by Cuba and China, among others.

By Stefka Wechsler

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Viewpoint: Trump tariffs may inflate midcon fuel costs

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Shell shuts oil unit at Singapore refinery

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27/12/24

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Viewpoint: US naphtha market poised for change

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26/12/24

Viewpoint: US naphtha market poised for change

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Viewpoint: Tariffs may curb US bunker demand

26/12/24

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26/12/24

Viewpoint: Tariffs may curb US bunker demand

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Viewpoint: US jet fuel demand to trail passenger growth

26/12/24

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26/12/24

Viewpoint: US jet fuel demand to trail passenger growth

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