Fuel oil price indices: The challenges to market integrity. London, Houston, Washington , New York, Portland , Santiago , Bogota, Calgary, Singapore, Beijing , Tokyo, Sydney , Dubai, Moscow, Astana, Kiev , Berlin and Johannesburg. Argus fuel oil market coverage. Who is Argus?.
Fuel oil price indices: The challenges to market integrity
London, Houston, Washington, New York, Portland, Santiago, Bogota, Calgary, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Berlin and Johannesburg
Argus looks at the entire day of trade.
In the absence of trade, Argus assesses the range within which oil could have traded through the day.
Argus publishes deals done to increase transparency.
In Europe deals are reported on a live bulletin board.
Demand for heavy crude in the Atlantic basin is rising as more coking, hydrocracking and hydrotreating is built.
Will Russian fuel oil exports continue at the same pace?
US fuel oil has permanently decoupled from natural gas.
Chinese demand has been strong, but is it trending lower?
Lowering of bunker fuel sulphur content
FTC 2008-2009 anti-manipulation rulemaking failed to cover fuel oil.
Dodd Frank anti-manipulation rulemaking will rope in fuel oil.
Dodd Frank will also likely force swaps to clear on an exchange.
Source: CME Group
Increased volatility relative to other benchmarks.
Less participant diversity and a continued dominant role for international traders.
A need for more transparency.
A need for standardization in market price reporting.
The USGC has enough liquidity to make an intelligent assessment: 2.1 transactions of 45,000 bls each per day in 2010.
However: From January 2010 to present, 3 companies have been parties to 87% of all deals transacted in 3% fuel oil.
Is there enough participant diversity to guarantee a fair and open price?
Can it be considered a true clearing spot market?
Is there a connection between lack of diversity and price volatility?
The market is standardized around a highly specific 3% barge transaction
Fuel oil trades in the Gulf coast primarily to set the price of Platts, which then sets
Forecasting the profitability of building a coker.
Maya crude formula: 40%
Merey/BCF formula: 37.5%
Mesa formula: 21%
Asphalt breakeven analyses
Complaints from all sectors of the industry about the integrity of the fuel oil markets.
WTI has been regularly collapsing in price relative to global benchmarks.
As a result, Saudi Arabia, Iraq, and Kuwait dropped WTI as a price benchmark starting in 2010.
Argus Sour Crude Index (ASCI) replaced Platts WTI as primary benchmark for imported heavy crude.
But the volatility of WTI is no match for the volatility of US Gulf coast fuel oil.
When crude formulas using fuel oil were designed they were brilliant ideas.
Now producers and refiners have a robust alternative in the Argus Sour Crude Index.
If crude producers abandon fuel oil as an index, it will destroy much of the market liquidity that has kept the bulk spot market – just barely – alive for the last 5 years.
The price of fuel oil in the US will eventually become simply the price of retail bunker fuel. But that would be no solution at all.
More information at www.argusmedia.com
London, Houston, Washington, New York, Portland, Santiago, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Berlin and Johannesburg