Global energy and commodity price reporting agency Argus Media in on Tuesday (9 July) provided a marine fuels industry related update:
A shortage of fuel oil cargoes and tight barging schedules are pushing up delivered bunker premiums in the port of Singapore in the run-up to the IMO 2020 sulphur cap.
The delivered premium to the 380cst high-sulphur fuel oil (HSFO) cargo price in Singapore rose to $26.50/t yesterday, the highest since November 2018. The premium averaged $8.50/t during the first half of 2019, according to Argus data.
Strong summer demand for fuel oil in the Middle East has restricted inflows to Singapore, with fewer arbitrage cargoes arriving during the summer months. The tightness has been compounded by efforts by refiners globally to limit fuel oil production ahead of the IMO's tougher cap on sulphur content in marine fuels, which takes effect on 1 January 2020.
Fuel oil inventories in Singapore declined by 14pc from a week earlier to fall below 20mn bl last week, with an increasing number of market participants giving up storage leases in anticipation of dwindling demand for HSFO by the end of the year. This has pushed the backwardation in the fuel oil market to a record $20.50/t yesterday.
Barging schedules in Singapore are also tightening. Tensions in the Middle East have diverted some demand from Fujairah to Singapore, just as a few suppliers have had their bunker craft operator licences suspended by Singapore's Maritime and Port Authority (MPA) after tampering with mass-flow meters (MFM). Availability has also been curbed as some barges are taken out of the market for servicing and recalibration of their MFMs.
Barge availability is also being squeezed by preparations for the IMO 2020 regulations, which will cut the maximum sulphur content to 0.5pc from 3.5pc now. Some barges are being cleaned so they can deliver low-sulphur fuel oil (LSFO) and marine gasoil (MGO). Market participants are anticipating a surge in demand for gasoil because of concerns from some buyers about possible instability in LSFO specifications. Marine gasoil is widely seen as the best substitute to ensure comply with the 0.5pc sulphur cap, albeit at a higher price.
The strong rise in Singapore premiums has led to an increasingly wide price differential with other bunker ports. The availability of abundant and heavily discounted fuel in the Mideast Gulf has sent Fujairah bunkers to discounts of nearly $50/t relative to Singapore, according to Argus data. Demand in Fujairah has weakened as buyers have been hit by higher insurance premiums, including war risk clauses, because of the tensions in Mideast Gulf. This has left shipowners increasingly hesitant to bunker in Fujairah, despite the much lower prices there.
In Asia-Pacific, delivered bunker prices in Hong Kong have turned from a premium to a discount to Singapore prices over the past week. Argus yesterday assessed 380cst high-sulphur bunkers in Hong Kong at a $17/t discount to Singapore, down from average premiums of around $5-15/t a month earlier. Demand in Hong Kong, Shanghai and the Yangtze river is weak to average, market participants said, in line with the global picture.
Delivered premiums in Singapore or China are not expected to fall back to more typical levels anytime soon, as some suppliers keep their cargoes in tanks to take advantage of these higher premiums.
Source: Argus Media
Published: 10 July, 2019
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