Petroleum prices and spreads in 2023 saw a decline, primarily attributable to the easing of concerns over a decline in Russia’s supply of distillates after import bans were issued by the E.U. and G7 countries, with the U.S. ban coming into effect in March 2022 and the E.U. ban coming into force in February 2023. The United States implemented import restrictions on Russian petroleum products in March 2022. However, Russia’s petroleum exports did not decrease to the extent anticipated by the market, as Russia was able to redirect its exports to other third countries, such as the United Arab Emirates, Tu.. rkiye, and Brazil. Furthermore, there were other factors that exerted pressure on the prices, including the interest rate hikes by the U.S. Federal Reserve, which caused the dollar to strengthen to such a degree that the prices of petroleum products traded in dollars rose, thus pressuring demand. Moreover, as La Nin~ a in 2022 gave way to El Nin~ o in 2023, the global temperatures were higher than usual, dampening demand in the electricity sector. This was compounded by the decline in natural gas prices. As the levels of natural gas inventory across the majority of European storage facilities exceeded 90% of the capacity, the natural gas prices slumped to levels lower than crude oil and diesel prices. As a result, crude and diesel demand was not buoyed up by the same gas-to-oil switching demand for electricity production as in 2022. The prices and spreads of each product are detailed below. The gasoline (ULG 95) - Dubai crude oil spread in 2023 was pressured by a surge in naphtha supply. As naphtha demand from the petrochemical sector saw a decline, especially from olefins production, there was a larger surfeit of naphtha, which was used as an additive in gasoline and thus increased the gasoline supply. The spread was US$ 16.7 per barrel, a US$ 2.2 per barrel decline compared to 2022. The jet/kerosene - Dubai crude oil spread in 2023 was adversely impacted by the global economic slowdown due to inflation and high interest rates. The spread was US$ 22.5 per barrel, a US$ 7.8 per barrel drop from 2022. The diesel 10 PPM - Dubai crude oil spread in 2023 was pressured by Russia’s success in diverting its exports to a third country despite the U.S. and E.U. oil import bans, which alleviated the market’s concern over the potential tightening of supply resulting from the sanctions and caused the diesel and Dubai crude oil spread in 2023 to fall by US$ 14.7 per barrel to US$ 24.3 per barrel compared to 2022. The high-sulfur fuel oil - Dubai crude oil spread in 2023 was buoyed up by a decrease in supply after Saudi Arabia and Russia cut crude output further by an additional 1.3 million barrels per day, effectively removing about 0.3-0.4 million barrels of high-sulfur fuel oil per day from the market. As two countries’ high-sulfur fuel oil yield from crude oil was approximately 30%, the high-sulfur fuel oil - Dubai crude oil spread in 2023 stood at US$ -10.3 per barrel, an increase of US$ 3.8 per barrel from 2022. The low-sulfur fuel oil - Dubai crude oil spread in 2023 experienced an adverse impact from the commencement of the commercial operation of Kuwait’s Al-Zour, a large refinery with a total capacity of 615,000 barrel per day. As it was designed to process as much as 225,000 barrels of low-sulfur fuel oil per day, a large supply flowed into the global market, with a significant portion exported to Singapore, the world’s largest fuel oil market. Consequently, the low-sulfur fuel oil - Dubai crude oil spread shrank by US$ 11.0 per barrel from 2022 to US$ 11.5 per barrel in 2023. Market Forecast for 2024 Crude oil prices in 2024 are projected to dip slightly compared to 2023 due to persistent pressure from high inflation and interest rates from the previous year, coupled with uncertainties over China’s economic recovery, which will cause concerns over a slowdown in oil demand. The global economy is expected to rally in the second half of 2024 as a result of the economic stimulus measures and economic activities of each country. As for supply, OPEC and allies (OPEC+) will likely retain control over their production to maintain balance in the market. In addition, the existing wars are anticipated to persist and spread to neighboring countries. However, supply tension will likely be supported by the increased production capacity in non-OPEC countries, such as the United States, Brazil, Iran, and Venezuela, causing crude oil prices to remain elevated or drop slightly from 2023. 68
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