At 9:00 AM on June 22, 2020, low sulfur fuel oil futures were officially listed and traded in Shanghai International Energy Trading Center (hereinafter referred to as INE), a subsidiary of Shanghai Futures Exchange (hereinafter referred to as SHFE). According to SunSirs, the main contract of low sulfur fuel oil 2101 opened at 2,570 RMB/ ton on the first day of trading and closed at 2,599 RMB/ ton, with the highest price of 2,763 RMB/ ton and the lowest price of 2,570 RMB/ ton. From the perspective of the market, the main contract of low sulfur fuel oil 2101 closed high on the first day of trading, hitting high and falling back. Daily increase of 24,859 positions.

Listing of low sulfur fuel oil futures contracts in line with market demand

As a kind of product oil, fuel oil is a heavy residual product separated from crude oil after gasoline, kerosene and diesel in the process of petroleum processing. The fuel oil is mainly made of the cracking residual oil and straight run residual oil. It is characterized by high viscosity and contains many non hydrocarbon compounds, resins and asphaltenes. Fuel oil is mainly used in oil refining and chemical industry, transportation, construction industry, metallurgy and other industries. At present, boiler oil consumption and power generation oil consumption have been greatly reduced, while the market demand for marine oil has been growing steadily.

According to the decision of the international maritime organization, since January 1, 2020, the sulfur content of marine fuel in the world has decreased from no more than 3.5% to no more than 0.5%. The demand for high sulfur fuel oil has gradually shrunk, and the consumption of low sulfur fuel oil has rapidly increased. However, the international market has not yet formed a pricing benchmark for low sulfur fuel oil. In the past, Singapore's regular high sulfur fuel oil was still used to price fuel oil, but the liquidity of the spot market for high sulfur fuel oil has gradually decreased, and the fuel oil market urgently needs low sulfur standard.

As a major fuel oil consumption country, China's fuel oil consumption reached 28.37 million tons in 2019, up 15.5% year on year. In addition, since this year, the domestic demand for low sulfur bonded marine oil has rapidly increased to more than 70%, and the demand for high sulfur marine oil has shrunk to 18%. With the implementation of the fuel oil export tax rebate policy and the issuance of the first 10 million tons of fuel oil export quota, the original traditional mode of "overseas import, domestic bonded sales" will be broken. China may become the world's largest producer of low sulfur fuel oil. Therefore, the listing of low sulfur fuel oil futures contracts meets the market demand.

Short term low sulfur fuel price is difficult to rise

From the perspective of futures contract trading participation, high sulfur fuel oil still occupies a place in the domestic fuel oil market, as can be seen from the positions of two kinds of fuel oil. According to SunSirs, the positions of the main fuel futures contracts 2009 of the previous period were 533,324, while the positions of the main fuel futures contracts of INE 2101 were 24,859. However, due to the impact of IMO's low sulfur policy for marine fuel oil, the demand for high sulfur fuel oil will further shrink in the later period, and the demand for low sulfur fuel oil will continue to rise.

Although the demand for low sulfur fuel oil is increasing due to the impact of IMO's low sulfur policy for ship fuel oil, the price of crude oil is still at a mid low level near $40 / barrel, which is vulnerable to geopolitical and demand changes; in addition, there are worries about the second outbreak of the global COVID-19, which casts a shadow on the future market of low sulfur fuel oil; in the near future, the spot price of low sulfur fuel oil has become a trend of substantial increase. From the perspective of market mentality, it is possible that the spot price of low sulfur fuel oil will go down in the later period. According to the monitoring of SunSirs, the spot market of low sulfur bonded fuel oil in China started to rise all the way from mid May, with the price rising from $219/ ton on May 18 to $299/ ton on June 22, up 36.23%. On the whole, it is difficult for the price of low sulfur fuel to rise sharply in the near future.

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