The market for fuel oil - mainly used for ships - may well have a gloomy future given recently-announced global regulations to limit sulphur emissions from ships, according to an industry analyst.
"Come 2020, we expect to see most of the market turn to marine gas oil or gas oil as the new shipping fuel on the grounds that it is probably the least painful alternative," said Mr Yaw Yan Chong, director of oil research in Asia at Thomson Reuters.
Mr Yaw, speaking at a fuel oil trading and hedging seminar at the Singapore Exchange yesterday, was referring to a historic decision by the International Maritime Organisation to set a 0.5 per cent cap on sulphur content for marine fuels last year.
The cap, much lower than today's 3.5 per cent limit, will come into effect worldwide from January 2020.
"But this could well sound the death knell for fuel oil as a widely-traded commodity," said Mr Yaw.
Already, baseload demand for fuel oil in Asia has steadily declined in recent years, falling by about 20 per cent from 2011 to 2016 amid an oversupplied market, noted Mr Yaw.
Total fuel oil imports into East Asia - mainly Singapore, China and Japan - averaged about 6.92 million tonnes each month last year, down from the monthly average of about 8.5 million tonnes between 2011 and 2012.
This means that the new rules could be "the final nail in the coffin for the beleaguered (fuel oil trading) market that has been suffering from poor margins for the past two to three years", Mr Yaw said, adding that liquidity in paper markets - the lifeblood of trading - has also been poor since 2014.
That said, Mr Yaw believes that Singapore, the world's largest bunker port by volume, will continue to hold on to its strong market share in the near term, as it did last year.
Sales of marine fuels in Singapore reached a record high of about 4.1 million tonnes a month on average last year, likely at the expense of other Asian ports such as South Korea, Hong Kong, Japan, and even China. This was even as the country rolled out the mandatory use of mass flow meters for marine fuel in January, raising cost for bunker suppliers.
"Everybody had expected to see a volume flight from Singapore then, but it didn't happen. The consensus among buyers is that even though cost is higher, they know they're getting secure supply," said Mr Yaw.
He also said that as a commodities trading hub, Singapore will continue to see activity, even with the changes in global regulations.
"The environment here is conducive for trading - whether it's fuel oil, diesel or crude - and it has been proven. So even if demand moves from fuel oil to gas oil, you'll just be trading gas oil from here," he said.
Added Mr Yaw: "It's just that the guys trading fuel oil will then have to learn to trade a different product. But they would still essentially be trading within the same ecosystem and the same community. So there are opportunities, you just have to be savvy enough to see it."