Fuel oil and petrol are the highest volume products of the oil and gas industry. Petroleum is useful in a range of applications such as solvents, fertilizers, and plastics. Fuel oil is popularly known as furnace oil or marine oil or heavy oil. Fuel oil is a petroleum product and it is the residue from the process of petroleum or crude oil distillation. Fuel oil is generally used for heat generation. It is used in various applications such as in industrial plants and power plants. It is used aboard ships as well. Light fuel oil has the benefits of being sulfur-free and being able to work well in cold weather. Heavy fuel oil is great for cold weather and is available in multiple grades.
The global service providers of fuel oil are Rosneft, Shell, Total, ExxonMobil, and BP. The global fuel oil market had a global demand of 4.76 Mbpd while the global supply of fuel market was 6.57 Mbpd in 2016. According to the 2020 market intelligence report by Beroe, it has been predicted that the fuel oil industry will witness a decline in global demand at a CAGR of up to 4%. Additionally, the global supply is expected to decrease at a CAGR of up to 6%. According to Beroe’s research and analytics, the high market maturity regions of fuel oil are Australia, the US, Europe, and Canada. The medium market maturity regions are South Africa, Brazil, and Chile.
The fuel oil industry can be segmented according to the end-use sectors. These include industrial, commercial, electricity generation, petrochemicals, marine bunkers, agriculture, domestic and road waterways, and residential. The cost of fuel oil depends on various factors and you should know about the fuel oil information regarding how the total cost is calculated. It is an important component for understanding the fuel oil market. The product costs of fuel oil include the cost of the raw material used which is crude oil, the equipment, labor costs, and maintenance costs. Overhead costs contribute to the fuel oil cost and these include costs related to marketing, employees, and utility.
Transportation costs contribute as well and the longer the distance the higher the cost. Distribution costs and regulatory costs contribute to the overall costs of fuel oil too. Fuel oil cost can include the cost of inventory which is where goods need to be kept until they are sold to the buyer. There can be additional costs that can increase the cost of the overall fuel costs. Generally, most of the cost is contributed from crude oil as it accounts for more than 40% of the final cost. Distribution costs account for over 30% of the total cost and overhead costs contribute more than 15% of the total fuel oil cost.
When there is a change in the crude oil prices then it can lead to a decrease in fuel oil prices. When the Chinese economy slowed down then it led to a decrease in global demand for crude oil. This decreased the prices of fuel oil and had an impact on the global fuel oil market. There is a likelihood that OPEC might order cuts in production which can lead to a decrease in crude oil prices and therefore a decrease in fuel oil prices too. However, the trends in the fuel oil market point to a decline in demand in the future and this is a first for a petroleum product because other products are witnessing an increase in demand.
The fuel oil market trend points to a decrease in global market size according to Beroe. The reason is that environmental concerns continue to rise especially with regards to heavy fuel oil which has a comparatively higher content of sulfur. New policies and various regulations have led to a decrease in the use on a global scale which is going to have a big impact on fuel oil growth. For example, regulations are promoting the use of cleaner fuels which are subsequently affecting the heavy fuel oil demand. Natural gas is being seen as a better alternative to fuel oil which has been increasing the demand for natural gas and decreasing the demand for fuel oil.
The electricity industry is slowly moving to other alternatives which have been pushing the decline in fuel oil demand even further. There is going to be excess heavy fuel oil left as a result of the constant shifting of various industries to other cleaner oils. Beroe estimates that the supply of fuel oil will decrease as a result of the decreasing demand. However, in some APAC regions, the demand is increasing but this might not continue for long due to environmental concerns. If the demand stabilizes then the production will take place only in certain areas where the demand for fuel oil is increasing.