Oil prices relative to gas

May 2016

Oil in power

  • The fuel oil crack spread (the discount of heavy fuel oil to crude in dollars per barrel) has narrowed by around $2/bbl (12.5%) from April levels as the weather in the Middle East has become hotter. Heavy fuel oil is widely burned in power stations in the region during the peak summer demand season, when electricity use for air conditioning peaks. 
  • Fuel oil crack spreads have narrowed since 2014 as refineries have been upgraded, particularly in Europe which is a key supply region. This allows more fuel oil to be converted into higher-value products, such as diesel, which typically sell at a premium to crude. Heavy fuel oil sold at a discount of as much as $25/bbl to Brent crude in spring 2014, but the difference has narrowed to around $15.75/bbl this year.