Tuesday, 23 April 2019 | 15:20
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Bunker C Is Now More Expensive Than Gasoline

Monday, 11 February 2019 | 00:00

The price of Bunker C oil, which is used mainly as a fuel for ships, recently exceeded the price of gasoline for automobiles for the first time in history. The latter was US$10 to US$30 higher than the former per barrel for the past 20 years, but the former exceeded the latter about four months ago as a result of a continuous oversupply. Under the circumstances, South Korean oil refining companies are increasingly worried about the huge investment they have made in facilities for producing value-added products such as gasoline, diesel and kerosene from heavy oils such as Bunker C.

The international price of 92-octane gasoline reached US$61.67 per barrel this month while that of Bunker C with a sulfur content of 3.5 percent reached US$62.05 per barrel. For reference, the prices were US$74.15 and US$56.97 in February 2018, respectively. The difference between the per-barrel prices was approximately US$10 until October 2018, but the Bunker C price rose to US$68.25 in November 2018 to exceed the gasoline price, US$66.93, for the first time since records began.

The drop in gasoline price is because of oversupply. The United States is currently producing 11 million barrels of crude oil on an average day and oil refinery utilization is rising in countries such as China. Market research firm Global Data recently said that oil refining companies are likely to expand their production facilities by 5.1 percent next year with the average annual increase in petroleum demand standing at 1 percent. The drop in gasoline price is also attributable to an increasing demand for Bunker C for heating purposes and facility improvement in Russia, the largest source of petroleum in the world.

South Korean oil refining companies have invested trillions of won for the past 10 years to improve their facilities. Advanced facilities such as heavy oil cracking facilities require an investment equivalent to four to seven times that in general oil refining facilities. In addition, gasoline accounts for at least 15 percent of the total output of such advanced facilities. This is why some South Korean oil refining companies began to lower their capacity utilization late last year in order not to produce cheaper gasoline from more expensive Bunker C.

The companies are looking forward to the implementation of IMO 2020, which is to lower the marine fuel sulfur content to 0.5 percent or less. They are expecting that their profit margin will rise from late this year as the Bunker C demand is increasingly replaced with demands for diesel. Meanwhile, the gasoline price is unlikely to rebound in the near future as the United States is continuing to supply shale oil and electric vehicles are becoming increasingly popular.
Source: Business Korea

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