Fuel oil is the final product of oil refining and has strong characteristics in product quality control. The final formation of fuel oil products is limited by many factors, such as the type of crude oil, processing technology, and processing depth. Fuel oil is widely used in power generation, marine boiler fuel, heating furnace fuel, and metallurgical furnace fuel. In recent years, fuel oil production has increased year by year.
Affected by global public health incidents, the fuel oil industry received a certain impact last year, and the market's performance in the first half of the year was bad in the second half of the year. On the supply side, 2020 is the first year of the implementation of the new IMO2020 regulations. Due to the early adjustment of the refinery's product structure, fuel supply did not experience major fluctuations. However, with the reduction in the weight of crude oil and the upgrading of refineries, the supply of high-sulfur fuel oil has tightened.
China's Fuel Oil Output Hits A Record High
On January 22, 2020, the domestic government announced the "Announcement on the Implementation of the Export Tax Rebate Policy for Bunkering Ships on International Voyages". This policy implements an export tax rebate and exemption policy for fuel oil refilled by ships during international voyages in coastal ports of China, and the value-added tax export rebate rate is 13%. In addition, in April, the Ministry of Commerce and the General Administration of Customs issued relevant regulations on low-sulfur marine fuel oil. After the effective implementation of the policy, domestic fuel oil production has grown rapidly. Although severely affected by the epidemic in the first half of the year, the performance in the second half of the year was outstanding. In 2020, China's fuel oil production reached a record high of 34.06 million tons, a year-on-year increase of 37.9%.
In terms of demand performance, due to the low fuel quality requirements of onshore industrial fuels such as manufacturing, power plants, refineries, and chemical companies, onshore fuels are facing competition with alternative fuels such as natural gas, liquefied gas, and coal. The impact of substitutes is great. In addition, transport ships have specific physical and chemical index requirements for power fuel, so there is no lower-cost alternative to marine fuel oil. Therefore, with the development of my country's water transportation industry, the demand for marine fuel oil is showing an upward trend. The apparent demand for fuel oil in China in 2020 is 31.267 million tons, an increase of 8.7% over the previous year.
The Dark Period Has Passed and the Global Maritime Trade Will Resume Soon
Global public health time has had a major negative impact on global shipping activities, resulting in a significant drop in freight rates. Among them, the price of dry bulk freight fell to a historical low. Since then, China's economic and industrial activities resumed growth in the second quarter, which drove the dry bulk market and achieved a bottoming out. The sharp drop in oil prices has led to an increase in oil demand in floating warehouses. Tanker fares dropped sharply after reaching the highest level in 30 years; container shipping companies actively mobilized capacity and reduced supply to support freight in the first half of this year. In the second half of this year, retail demand in Europe and the United States returned to a level that exceeded expectations. The shipping market has reached a record high in the past decade. Public data shows that the global ocean trade volume is expected to fall by 4.0% in 2020. Although the future market is highly uncertain, it is certain that the darkest moment in the world has passed.
With the gradual control of the epidemic and the accelerated release of vaccines, the global economy has regained vitality after a period of shutdown, and the global dry bulk market. It is estimated that in 2021, the global bulk cargo turnover will increase by 34% year-on-year, and the global dry bulk market demand will increase by 4.4% year-on-year, exceeding the capacity growth of 1.7%, which will increase the price of dry bulk cargo. After years of development, the concentration of the container transportation industry has increased significantly. It is expected that the normal consumption before the epidemic and the replenishment of inventory in 2021 will support the growth of container demand, and the container freight volume is expected to increase by 3.3% year-on-year.
In the oil transportation market, it is expected that the recovery of global industrial activities and international aviation in 2021 will help the gradual recovery of demand for crude oil, and the output gap in the tanker market is expected to help the recovery of freight rates. It is estimated that oil transportation demand in 2021 will increase by 5.8%, which is basically the same as the 5.7% growth rate of transportation capacity.
Power Generation and Refinery Feedstock Have Become the Two Stable Pillars of High-Sulfur Fuel Oil Demand
Since the formal implementation of IMO2020, the source of demand for high-sulfur fuel oil has mainly shifted from the transportation industry to the power generation of raw materials from power plants and refineries. In the third quarter of last year, the Middle East’s summer fuel oil power generation demand represented by Saudi Arabia increased, but OPEC’s production reduction plan eased the restrictions on crude oil exports. This year, part of the Saudi fuel oil power generation demand was directly replaced. The direct burning of Saudi crude oil generates 700,000 barrels a day, which is higher than the level of the same period of the previous year and the average level of the past five years. At the same time, Saudi Arabia’s fuel demand in August was 686,000 barrels per day, which was much lower than the same period last year, but still higher than the average level of the past five years. Although slightly worse than the same period of the previous year, Saudi Arabia's demand for fuel this year still boosted the Asia-Pacific market.
It is worth noting that, unlike previous performances, in October last year, the willingness of Saudi Arabia and Pakistan to purchase high-sulfur fuel oil did not decrease. The strong natural gas market has made high-sulfur fuel oil a more economical alternative. Pakistan There have been many biddings for the purchase of high-sulfur fuel oil for winter shipments, while the purchase amount in the same period of the previous year was zero. Saudi Arabia's fuel oil demand in October also reached 700,000 barrels per day, far exceeding the level of the same period in the past five years.
Therefore, when considering the power generation demand for high-sulfur fuel oil, seasonal factors are not the only conditions, and market fluctuations of other alternatives must also be considered. It is expected that power generation demand in 2021 will be the same as last year's level and continue to be one of the stable sources of high sulfur demand.
In 2020, fuel oil market prices will fall first and then rise. Affected by global public health events in the first half of the year, the shipping market almost stagnated, leading to a sharp drop in fuel oil. In the second half of the year, as the epidemic gradually eased and the economy recovered, the enthusiasm for crude oil procurement in some regions rebounded and fuel prices rebounded.
In 2021, social production and living activities will be back on track, and the global economy will be rejuvenated, which will promote the increase in fuel production. The demand side will continue to improve as the overseas economy recovers, and the prosperity of the shipping market and the electricity market will increase. In 2021, under the normalized epidemic prevention and control mechanism, the global economy will gradually recover. At the same time, with the increase in international trade activities, the recovery of the shipping market will boost the fuel oil market.
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