CITIC Futures: Expected high profits are likely to drive increased production of low-sulfur fuel oil

Low-sulfur fuel oil follows crude oil, oscillating at high levels. The market is currently focused on developments in the geopolitical situation. Low-sulfur fuel oil’s main product attributes are strong; during this round of oil price increases, the valuation of low-sulfur fuel oil has been repaired sharply higher versus crude oil and asphalt, and profits have risen significantly. A positive diesel-gasoline price spread may also indicate that low-sulfur fuel oil is tracking gasoline’s fluctuations.

Low-sulfur fuel oil faces bearish factors such as a decline in shipping demand, substitution by green energy, and substitutes from high-sulfur fuel oil. After the cracking spread surged, the low-sulfur fuel oil–asphalt spread has returned to a high level, and valuations are in a neutral-to-slightly-high state. With its main product attributes, low-sulfur fuel oil, in the process of crude oil rising, sees its cracking spread strengthen. On the fundamentals side, the export tax rebate rate for low-sulfur fuel oil is more advantageous than that for refined oil products, and the impact of low-sulfur fuel oil export quotas is limited. It is expected that higher profits could drive an increase in low-sulfur fuel oil production. (CITIC Futures)