MOSCOW (MRC) -- In November 2021, more residual fuel oil was consumed in the US, measured as product supplied, than during any month since January 2017, according to Hydrocarbonprocessing with reference to the International Energy Agency (IEA).
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 the EIA's weekly petroleum status report.
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. Ship owners can install sulfur scrubbers on board to reduce sulfur emissions while still consuming high-sulfur fuel oil and remain compliant. Ship scrubbers are expensive and require ongoing maintenance, but vessels can lower operating costs by purchasing high-sulfur fuel oil instead of higher-priced very-low-sulfur fuel oil or low-sulfur marine gas oil.
The IMO regulation applies to global shipping. Marine vessels operating within the North American or US Caribbean Sea Emission Control Areas were already required to meet 0.1% sulfur content while operating within those waters.
Since spring 2020, overall production of residual fuel oil has decreased because of substantially less refinery production resulting from the effects of the COVID-19 pandemic.
As MRC reported earlier, EIA forecasts that crude oil prices will fall in 2022 and 2023 from 2021 levels, according to its January 2022 Short-Term Energy Outlook (STEO). In the fourth quarter of 2021, the price of Brent crude oil, the international pricing benchmark, averaged USD79 per barrel (b). EIA forecasts that the price of Brent will average USD75/b in 2022 and USD68/b in 2023. The declining prices are driven by a shift from global petroleum inventory declines during 2021 to inventory increases in 2022 and 2023. Global petroleum inventories decline when consumption is greater than production and increase when production is greater than consumption.
We remind that oil supply will soon overtake demand as some producers are set to pump at or above all-time highs, said EIA, while demand holds up despite the spread of the Omicron coronavirus variant.
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