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Wednesday, September 23, 2020 

Business information provider Bloomberg has highlighted that with a decline in air transport due mainly to Covid-19, a glut of aviation fuel in the oil marketplace has led to the fuel being used as a blending component for very low-sulphur marine fuel oils.

Straight-run kerosene, usually among the most expensive oil products, which is normally processed into jet fuel, is now being used to make very low-sulfur fuel oil for the maritime industry. Higher than normal amounts of diesel and gasoil are also finding their way into shipping fuel. Bloomberg anticipates that with the International Air Transport Association not expecting air travel to get back to pre-virus levels until 2024, this wa of using excess stocks of kerosene may be a feature of the market for some time to come.

Analysts point out that Jet fuel components were first used for blending earlier this year in Singapore before it became uneconomic as prices moved back to a premium to VLSFO, but the practice is picking up again after aviation fuel flipped back to a discount. Jet fuel prices in Singapore fell from over US$70 a barrel in January to close to US$20 in early May before recovering to trade around US$41, according to Bloomberg Fair Value data. VLSFO bunker prices in the Asian oil hub, meanwhile, are thought to be around 53% lower than they were at the end of 2019. The cut in demand for aviation and road transport fuels has led to a greater availability of blending components for marine fuel oils.

Although use of excess aviation fuel for blending is lowering the price of VLSFO, there are possible safety implications. Using too much straight-run kerosene can lower the flash point, something which has been noted by Lloyd's Register fuel experts.

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