By Sabrina Valle and Marianna Parraga and Roslan Khasawneh
RIO DE JANEIRO/MEXICO CITY/SINGAPORE (Reuters) – Brazil is increasing its exports of marine fuel oil to lucrative “premium” centers in the sector in Asia, where laws requiring lower sulfur content have led to its peers Latin Americans to withdraw from the market, according to sources and data.
Fuel oil exports are the second largest source of revenue from the energy sector for most oil-producing countries in Latin America. However, stricter emissions laws have led Singapore, the world’s largest maritime supply market, to reduce imports of the Latin American product to 94,000 barrels per day (bpd) this year, from 167,000 bpd in 2016, according to data from the commercial agency Enterprise Singapore.
The rules of the International Maritime Organization (IMO) have reduced the sulfur content in marine fuels to 0.5%, against 3.5% previously. The move was positive for the few Latin American producers with “sweet” oil – especially Brazil, whose fuel oil meets the standard with little need for blending, attracting demand and firm prices.
Petrobras changed its marketing strategy to take advantage of the change in the market. The company says it shipped three-quarters of its fuel oil exports to Singapore in the first quarter, and expects high quotes for the low sulfur product to persist for years.
The market acronym for low sulfur fuel oil is LSFO, while high sulfur fuel oil is known as HFSO.
Petrobras said the global shift in favor of LSFO temporarily boosted Brazilian fuel oil prices higher than diesel – a lighter and generally more expensive refined product – last year. Brazil was responsible for two-thirds of fuel oil exports from Latin America to Singapore this year, compared to just 10% five years ago.
Petrobras told Reuters that it has moved away from long- and short-term contracts signed with large industrial consumers in the Caribbean, Europe and Asia, starting to use mainly “spot” contracts, aimed at customers willing to pay more for last-minute cargo.
In contrast, heavy sour oil producers such as Mexico and Venezuela, who have not invested enough in refinery adjustments to reduce the sulfur content of products, now need to offer significant price discounts or focus on markets such as China and the Middle East , where the “dirtiest” fuel is traded.
“Brazil managed to fill the space they left behind,” said Marcelo De Assis, head of Latin America Upstream Research at Wood Mackenzie.
A record average of about 129,000 bpd of LSFO from Brazil arrived in Asia in 2020, according to data intelligence company Kpler. Half of that volume went through Singapore, according to figures from Enterprise Singapore.
This year, the LSFO is trading at a 15% premium on Brent crude, said a person with knowledge of the deals.
Argentina’s “sweet” fuel oil has also registered strong sales, with Puerto Rico and Singapore absorbing most of the volume the country can export, according to data and sources.
To access a chart on the Latin American product offering to Singapore, click on: https://graphics.reuters.com/LATAM-ASIA/FUEL/bdwvkxbmlpm
(Reporting by Sabrina Valle, in Rio de Janeiro; Marianna Parraga, in Mexico City; and Roslan Khasawneh, in Singapore; additional reporting by Ana Isabel Martinez and Adriana Barrera, in Mexico City)
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