Specifically, the refiners have redirected low-sulphur feedstocks into making the VLSFO, rather than refining it into gasoline, following recent opinions that gasoline would see low profits.
One Seoul refining official stated that their plant firstly operates with high-sulphur crude oil; What they do is take the produced fuel oil and remove the sulphur through a residue desulphurization process. Instead of passing the feedstock through a residue fluid catalytic cracker (RFCC) to make gasoline, they are selling it as VLSFO. As a result, gasoline output would be reduced, while LSFO output would be increased.
Moreover, Reuters added that Taiwanese Formosa Petrochemical, South Korea’s GS Caltex, S-Oil Corp and Hyundai Oilbank Corp have already sold VLSFO cargoes since June.
Also, Formosa has sold two cargoes in July which is their first effort to be active in the market in at least a decade.
Similarly, GS Caltex has sold three VLSFO cargoes for July to September delivery.
For the time being, refiners have a hard time deciding on which fuel to produce due to the fact that shipowners are able to choose between LSFO or MGO to comply with IMO's 2020 sulphur regulations.
Formosa's spokesperson, K.Y. Lin, added that gasoline and fuel oil margins aren't far apart, keeping in mind that still the price of gasoline is more than $600 a ton in comparison to VLSFO at $500-$520 per ton against the cost of Dubai crude at $450 a ton.
Concluding, refiners are obliged to assess the value of the basket of products produced from an RFCC which includes gasoline, liquefied petroleum gas, propylene and light cycle oil.