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Argus Media: Off-spec fuel oil creates two-tier bunker pricing

17 Aug 2018

The following article is written by Sammy Six, Marine Fuels Pricing Analyst at Argus Media, and shared with Manifold Times:

Certain suppliers and trading firms with off-specification fuel oil in Singapore have been trying to sell delivered bunkers below the going market rate in an effort to rid themselves of compromised product. This discount has in the past two weeks been between $5-8/t, according to one trader.

Some physical suppliers have been offering potentially contaminated bunkers by stripping away parts of clause 5 of the standard bunker sales contract referring to ISO 8217:2017, which specifies that products should not have contaminants in it that could prove harmful to personnel, the ship and its machinery, among other provisions. Meant as a precaution against uncertain future legal litigation, this will limit shipowners' ability to claim damages as they will have commercially agreed to take on potentially contaminated fuels. The majority of suppliers in Singapore are still confirming full ISO specifications but this can however not be interpreted as a full guarantee.

Several shipowners as a result are asking for non-chemical guarantees and non-terminal statures, according to a trader. But this will significantly shorten the supplier list of many shipowners and drive up pricing, said a bunker buyer.

Additional testing is instead usually done before delivery takes place that may cause serious delays. Suppliers are also pressured to provide 30 days of quality claim bar, which has increasingly been industry standard, although a number of companies still only provide 15 days or even less.

"Thirty days should be enough to bunker, conventionally test and then start burning the fuel to confirm there are no issues as long as good fuel management techniques are used on board which unfortunately does not hold for everyone", according to one trader. The contamination issue is also causing conflicts between shipowners and charterers, as the latter are not obliged to a quality time bar, according to another trader.

Amid the market anxiety, delivered bunker premiums have been high over the past weeks. The differential between Argus' delivered 380cst bunkers and the Argus Singapore high-sulphur fuel oil 380cst assessment averaged $11.45/t in July and has increased to $16.57/t so far in August. Arbitrage cargo arrivals from mid-September onwards should ease the market, but premiums are expected to remain high throughout August, according to a trader.

The current bunker quality issues affecting major ports are possibly a result of too high levels of phenol and other chemicals ending up in the fuel oil blend. Two VLCCs originating from the US Gulf coast discharged their cargoes into the Universal and Helios terminals in Singapore, which were then blended and loaded on to barges and subsequently delivered to a variety of vessels. Given Singapore's position as a large import and export hub, off-specification cargoes have caused issues as far as Hong Kong and South Korea. The Chinese market has yet to be affected.

Photo credit: Argus Media
Published: 17 August, 2018


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