The global marine fuel regulation could diminish the price advantage for marine gasoil (MGO) that Panama enjoys over other Latin American countries.
That is because the International Maritime Organization's (IMO) 2020 rules will drive up demand for 0.1pc sulphur maximum diesel Panama now gets from the US.
Panama MGO monthly sales have grown steadily in recent years, helped in part by the expansion of the Panama Canal. In 2013, monthly MGO sales in the country averaged 11,061t, according to the Maritime Authority of Panama. In 2018, that figure had grown to an average of 35,100t per month. But sales could slip if the country sees more competition for US barrels.
Panama's MGO was the least expensive in Latin America in 2018 and has been so far in 2019, according to Argus assessments. Panama MGO was selling at around $40/t discount to the second cheapest MGO location, Cartagena, Colombia, in 2019.
But in 2020, when the IMO 2020 rule kicks in, Panama could lose its MGO price advantage, as demand for US distillates picks up from Mexico, Brazil, Chile, Peru, Ecuador, the Caribbean, northwest Europe and Singapore.
Panama is the biggest bunkering hub in Latin America because of the canal and also its oil tank storage availabilities, which has allowed 10 marine fuel suppliers to set up operations there.
Panama MGO sales have already suffered a blow from the ongoing trade war between the US and China, which has reduced shipments. MGO sales declined by 7pc to 185,212t in January-May 2019, compared with 198,398t during the same period last year. Residual fuel oil bunker demand dropped by 14pc to 1.67mn t. Bunker traders attributed the drop to the US-China trade war, which has limited vessel movement of Chinese goods.
The number of vessels fueling in Panama dropped by 15pc in the first four months of the year to 2,433, from 2,860 vessels during the same period last year. Marine fuel sales were stronger on Panama's Pacific coast, compared with the Caribbean coast. The Pacific coast demand accounted for 77pc or 1.29mn to of total fuel oil demand for 67pc or 379,300t of MGO sales, according to the port authority.
Argus launched 0.5pc sulphur fuel oil assessments on 10 June, published daily in Argus Marine Fuels. Suppliers currently peg the price of 0.5pc sulphur fuel oil at 80-90pc off of the price of MGO.
