16 Feb 2022 , 01:01 PM
The EIA stated yesterday that US demand for residual fuel oil rose late in 2021. In November 2021, more residual fuel oil was consumed in the United States, measured as product supplied, than during any month since January 2017. Residual fuel oil has several uses, but it is primarily consumed as bunker fuel in the maritime shipping sector. Consumption in December 2021 was at its highest end-of-year level since 2012, according to our Weekly Petroleum Status Report (WPSR).
On January 1, 2020, tighter regulations from the International Maritime Organization (IMO) on maritime fuel sulfur specifications became effective. Before 2020, marine fuel could have a sulfur content as high as 3.5%, which is considered high-sulfur fuel oil. The IMO now requires ships to switch to fuels with a 0.5% sulfur content or less, forcing ships to use a more processed, and more expensive, variety of residual fuel oil called very-low-sulfur fuel oil. Ships comply with the IMO specification as long as their actual emissions meet the target sulfur emissions level, regardless of the specification of the fuel they use.
The increase in residual fuel oil demand comes with record increases in maritime shipping volumes and rising high-sulfur fuel oil prices in Singapore. The Singapore market is a global benchmark for marine shipping. Since the beginning of November 2021, the Singapore very-low-sulfur fuel oil price premium over high-sulfur fuel oil increased to more than $20 per barrel (b) and neared $30/b throughout December 2021 and January 2022.
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