Q1-Q3 Residual Oil Market Review and Q4 Forecast

From 2015 to 2019, the prices of residual oil in China fluctuated upward, and in 2019, the prices of residual oil kept fluctuating. According to SCI’s statistics, up to September 30, the average price of residual oil in Shandong was RMB 3,475/mt, up RMB 625/mt or 21.93% from the beginning of 2019. From January to September 2019, the average price of residual oil in Shandong was RMB 3,320/mt, up RMB 102/mt or 2.18% from last year.

In Q1, 2019,the international crude oil trended up, giving support to the residual oilmarket in China. Meanwhile, the supply of residual oil declined to some extent,and the overall prices of residual oil in China increased. Specifically, at theend of January, many refineries cut their prices of residual oil to declineinventory, and therefore, the prices of residual oil dropped to the lowestlevel from Q1 to Q3, 2019. From February 2019, the replenishment at downstreamusers supported the residual oil market, and the prices of residual oilincreased to RMB 3,550/mt. In March 2019, the demand for diesel was tepid, and theprofits of cokers became negative. Moreover, the marine fuel oil market gavethin support to the residual oil market, and the prices of residual oil becamelow at the end of March.

In Q2, 2019, the prices of residual oil keptfluctuating. During April, though the international crude oil prices trendedup, the support to China’s residual oil market was limited. Many downstreamusers purchased on a need-to basis, and the price increase of residual oil wasslight. In May, the supply of residual oil became relatively short, but thedownstream demand remained moderate. Therefore, the prices of residual surgedfor a short period and then resumed to rational levels.  During June, the downstream demand forresidual oil was sluggish, and the prices of residual oil fluctuated at lows.

In Q3, 2019, the prices of residual oil firstwent up and then declined. At the beginning of July, the overall prices ofresidual oil continued growing because of the relatively short supply. InAugust, the short supply of residual oil was relieved to some extent, and thesales of residual oil at refineries became weak. Therefore, the mainstreamnegotiation prices of residual oil trended down. During September, the supplyof residual stayed at a relatively low level, and the dealings in the marketwere stable.

In Q4, 2019, there will be many bearishfactors in the international crude oil market, and the prices of internationalcrude oil are likely to underperform. SCI reckons that the WTI price is likelyto fluctuate around $50-56/bbl, while the Brent price may fluctuate around$59-63/bbl. As a consequence, the prices of refined oil in China may trenddown, and the dealings in the fuel oil market may become weak. Moreover, theprices of bitumen are likely to be stable-to-declining. Accordingly, SCIreckons that in Q4, 2019, the prices of residual oil may drop from highs.Currently, the demand for residual oil revives slowly, and the prices ofresidual oil keep fluctuating. In November, there are risks that the prices ofresidual oil may continue declining due to the decrease of demand and theincrease of the supply. In December, some participants may replenish theirinventory at the end of the year. However, the scale of replenishment is likelyto be small, and the price revival of residual oil will be limited.

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