The International Energy Agency (IEA) estimates that fuel oil supply is expected to face an acute shortage before 2020 when sulfur limit for marine fuel is set due to upgrade in refinery and a decline in medium and heavy crude oil production. According to the new regulations of the International Maritime Organization (IMO), by January 2020, the highest proportion of marine fuel sulfur will be reduced from the current 3.5% to 0.5%.
The IEA says, since November last year, due to the OPEC and non-OPEC (such as Russia) production reductions, the global production of medium and heavy crude oil has dropped by 1.4 million barrels per day, reducing the residual fuel oil market by 500,000 barrels per day. In the fourth quarter of last year, global demand for residual fuel oil was 6.74 million barrels per day, declining by 2.2% year-on-year.
The IEA states that the reduction in global crude oil supply is narrowing the profit margin of complex refineries comparing with simpler ones, which in turn leads to the disappearance of advantages of complex refineries. The increasing strengthening of fuel oil cracking in the past five months has made upgrades less feasible.