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Integr8: Geopolitics have a huge bearing on our market, but something different is happening in HSFO bunker pricing

Firm discusses the impact of the extreme events unfolding in Middle East, weaker economic indications for China and Europe and causes of huge spread between VLSFO and HSFO, amongst others.

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By Steve Christy, Research Contributor, Integr8 Fuels
[email protected]       

26 October 2023

We are in a global, geopolitical market

It is often said that the more dramatic movements in oil prices are usually driven by world events, and that the bunker market is no different to any other part of the crude and products markets.

This is exactly what has happened in October. Crude prices were falling in the first week of the month on the back of weaker economic indications for China and Europe. Even though Saudi Arabia and Russia stated they would maintain their voluntary production cutbacks through to the end of the year, this had little impact on the market and oil prices continued their bearish slide.

Over this first week of October Brent futures were down $7/bbl, Singapore VLSFO down $50/mt and Rotterdam VLSFO down by almost $40/mt.

Shortly thereafter, the extreme events in the Middle East took hold. Oil prices rebounded with the news, wiping out the declines seen in the previous week; Brent futures moved back up to the low $90s, Singapore VLSFO returned to around $680/mt, and Rotterdam VLSFO hit $625/mt.

These “down and up” price developments and the close relationship between Brent crude and VLSFO are shown clearly in the chart below.

Graph 1 1024x666 1

Prices have eased at the time of writing, as people wait to see where the Middle East conflict goes and weaker economic indicators out of Europe come to the forefront.

Crude price direction is usually a very good guide for VLSFO

Putting some longer-term context into the Singapore VLSFO versus Brent relationship, the chart below illustrates monthly average price developments for these two commodities so far this year. It shows their very strong correlation and the range in pricing. When Brent crude was around $75/bbl, Singapore VLSFO was close to $575/mt. With recent crude prices rising to their highest levels so far this year and Brent in the low $90s, so monthly average Singapore VLSFO prices are at $660/mt and almost $100/mt above their mid-year lows.

Graph 2 1024x664 1

In the near term, a lot of the movement in crude oil prices will be linked to what is happening in the Middle East, and so VLSFO price direction will be derived from these events. However, there are still nuances within the bunker market that we continue to monitor, not least the differences between VLSFO and HSFO.

In complete contrast to VLSFO, average prices for HSFO have fallen!

Unlike VLSFO prices closely tracking crude and moving higher over recent months, there has been a turning point in the HSFO market and prices have actually fallen. Whereas monthly average Singapore VLSFO prices are now $30/mt higher than in August, Singapore HSFO prices are $70/mt lower!

Graph 3 1024x667 1

VLSFO and HSFO go in different directions

From the initial analysis, Singapore VLSFO closely tracks crude, so it is no surprise that the price relationship between these two are consistent. In fact, Singapore VLSFO is priced at close to 100% of Brent (on a weight basis) and this year has only varied within a very narrow range of 95-103%. If you go back three years, the relationship has been consistently tight and VLSFO has been within the 95-108% range of Brent in all but three months.

Graph 4 1024x646 1

This is in complete contrast to HSFO pricing versus crude. Taking Singapore HSFO as a benchmark, its percentage of Brent shifted from around 65% at the start of the year to close to 80% by mid-year. It is no surprise that the HSFO/Brent relationship strengthened even further in July and August to close to 90%, as Saudi Arabia and Russia made additional, voluntary cuts in crude production/exports totalling 1.5 million b/d (all of which are medium and heavy grades). Consequently, HSFO supply was always going to be squeezed and its relative price likely to rise.

With statements that the Saudi (and Russian) production cuts would run through to the end of this year, it might have been the case that HSFO prices would continue to be supported, at least going into the fourth quarter. This hasn’t happened, and HSFO prices have already fallen sharply despite the Saudi Arabia and Russia strategy and heightened geopolitical risks in the Middle East.

Why has HSFO fallen relative to Brent?

HSFO pricing was always expected to weaken versus Brent, not least in anticipation of the rise in Saudi and Russian crude exports from January. However, the shift has been ‘early’ and the key trigger for the turnaround has centred on the Middle East and a recent substantial increase in HSFO exports.

HSFO is used in a number of power-generating plants in the Middle East and demand is high in the region during the summer months to meet air conditioning demand. As temperatures eased in October, ‘local’ demand for HSFO fell back. Consequently, HSFO exports from the UAE moved from virtually nothing in September, to indications of around 3 million bbls going to Singapore in the middle two weeks of October. On this basis we could expect the seasonal pattern of continued HSFO exports from the UAE until power-generating demand increases again Q2 next year.

In addition to this seasonal shift, there has also been a structural change in HSFO exports from Kuwait. Like the UAE, Kuwait has been burning HSFO in its power generating sector, with supplies coming from their domestic refineries as well as imported volumes. However, with the phased introduction of the massive, 615,000 b/d Al Zour refinery from late last year, it was always planned that the country would switch to using lower sulphur fuel oil as part of its Environmental Fuel Project (EFP). This is now in place and the agreement is for Al Zour to supply up to 225,000 b/d of low-sulphur material to the Kuwait Ministry of Electricity as part of their cleaner energy program.

This has therefore ‘freed-up’ Kuwaiti HSFO for export and also removed them as a buyer of HSFO from the international market on a permanent basis. These ‘additional’ HSFO volumes are moving to Asia and are another contributing factor to a weakening HSFO price.

It all means a widening VLSFO – HSFO price differential

Looking at the VLSFO and HSFO markets, it is clear the price spread between the two products has widened. With ‘incremental’ HSFO volumes available in the Middle East and moving into Singapore, the widening has been greater in these two bunker regions.

This has meant the VLSFO – HSFO spread in Singapore has shifted from an extreme low of only $80/mt in July and August to an average of $180/mt in October. This is still not back to levels seen at the start of this year, but the advantages for scrubber-fitted ships are clearly far better than they have been since March.

Graph 5 1024x569 1

The price spread in Fujairah is very close to the Singapore differential, at around $175/mt in October. However, since the Russian invasion of Ukraine and the resulting ban on Russian products entering Europe (halting a substantial flow of HSFO), the VLSFO – HSFO price spread in Europe has typically been far smaller than in the Middle East and Asia. So, although the spread in Europe has widened, in Rotterdam it has only moved out to $80/mt in October, $100/mt less than in Singapore!

What next?

With the shifts in the HSFO pricing and additional heavier crudes expected to enter the market from the start of next year as Saudi Arabia and Russia remove their voluntary production cutbacks, we can expect ongoing relative downwards pressures on HSFO prices. In the near term, it remains to see what the geopolitical risk is on crude prices, which in turn will largely determine VLSFO pricing. Now the VLSFO – HSFO spread is far more attractive for owners of scrubber-fitted ships in the Middle East and Asia.

Photo credit and source: Integr8
Published: 31 October, 2023

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Bunker Fuel

Baltic Exchange: Bunker Report (28 May 2024)

Bunker report panellists include Island Oil Limited, Cockett Marine Oil Pte, Monjasa A/S and KPI OceanConnect.

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Baltic Exchange: Bunker Report (28 May 2024)

The following bunker report has been provided by freight market information provider Baltic Exchange for post on Singapore bunkering publication Manifold Times:

Note:

All values are in US$/metric ton, all-in (invoice price), delivered on board
Delivery in 7-10 days
ISO 8217:2010
IFO 380 3.5% Sulphur
IFO 380 0.5% Sulphur
DMA 0.1% Sulphur

Rotterdam – Waalhaven – Maasvlakte range
Houston – Houston Harbor
Singapore – Anchorage, under SBA Scheme
Fujairah – Offshore Anchorage Area

Submitted weekly at Close of Business UK time, on Tuesday & Thursdays

Panellists:
Island Oil Limited, Cockett Marine Oil Pte, Monjasa A/S, KPI OceanConnect

 

Photo credit and source: Baltic Exchange
Published: 29 May, 2024

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Bunker Fuel

ENGINE: East of Suez Bunker Fuel Availability Outlook (28 May 2024)

HSFO supply is tight in Zhoushan; LSMGO and VLSFO availability is good across several Chinese ports; several South Korean ports could face weather disruptions.

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RESIZED ENGINE East of Suez

The following article regarding regional bunker fuel availability outlook for the East of Suez region has been provided by online marine fuels procurement platform ENGINE for publication on Singapore bunkering publication Manifold Times:

  • HSFO supply is tight in Zhoushan
  • LSMGO and VLSFO availability is good across several Chinese ports
  • Several South Korean ports could face weather disruptions

Singapore and Malaysia

Lead times for VLSFO in Singapore have experienced notable fluctuations recently. Most suppliers recommend lead times of up to nine days for this grade, while some can accommodate stems in as little as two days in port. This has improved from the week prior, when traders recommended longer lead times ranging between 5-10 days.

HSFO supply remains limited in the port, with recommended lead times unchanged at 9-12 days. Lead times for LSMGO vary widely, ranging between 2-8 days.

Singapore’s residual fuel oil stocks have averaged 7% lower so far in May compared to April, according to Enterprise Singapore. Despite a significant 25% increase in the port's net fuel imports this month, Singapore’s fuel oil stocks have fallen below 19 million bbls. Fuel oil imports have increased by 1 million bbls, surpassing the 106,000-bbl growth in exports this month. The port’s middle distillate stocks have also declined, averaging 3% lower for the month.

In Malaysia's Port Klang, VLSFO and LSMGO grades are readily available, with recommended lead times of 3-5 days. Some suppliers can provide even faster deliveries for smaller parcel sizes. However, HSFO availability remains constrained due to limited product availability.

In the Indonesian ports of Jakarta and Surabaya, the availability of VLSFO and LSMGO remains good. Additionally, the port of Balikpapan has an ample supply of VLSFO, with recommended lead times of around four days.

China, East Asia and Oceania

Prompt availability of VLSFO and LSMGO grades remains constrained in Zhoushan, with suppliers recommending lead times of 5-7 days, unchanged from last week. HSFO supply has tightened due to the suspension of operations at the Dading oil terminal after a recent oil spill incident. Most suppliers are advising lead times of over two weeks for HSFO there, according to a source.

In Northern China, the availability of VLSFO and LSMGO grades is said to be good in the Dalian port. Similarly, both grades are readily available in Qingdao and Tianjin, though HSFO supply is limited in these ports. In Shanghai, VLSFO and LSMGO availability remain normal, while HSFO supply has been scarce. In Fuzhou and Xiamen, VLSFO and LSMGO grades are readily available. In Guangzhou and Yangpu, prompt availability of both low-sulphur fuel grades remains limited.

In Taiwanese ports including Hualien, Kaohsiung, Taichung and Keelung, the availability of VLSFO and LSMGO remains good, with lead times remaining at 2-3 days.

In Hong Kong, all grades are readily available, with recommended lead times of 3-5 days, while certain suppliers can provide faster deliveries for smaller parcel sizes.

Strong wind gusts of 21-27 knots and swells of close to two metres are forecast to hit the port between Tuesday and Wednesday, which might impact bunker deliveries in Hong Kong.

In South Korean ports, bunker demand has seen an improvement compared to last week, according to a source. Lead times for VLSFO and LSMGO range between 3-10 days, contrasting with the shorter lead times of around four days observed last week. HSFO availability has become tighter, with most suppliers recommending lead times of 8-10 days – a significant increase from around four days last week.

Bunker operations in several South Korean ports, including Ulsan, Onsan, Busan, Daesan, Taean, and Yeosu, may experience intermittent bunkering disruptions throughout the week due to anticipated adverse weather conditions.

High bunker prices in Japanese ports continue to dent bunker demand in the country. Tokyo's VLSFO was priced about $27-28/mt higher than VLSFO prices in Zhoushan and Singapore on Tuesday. Lead times varied widely across major Japanese ports, with approximately seven days in Tokyo, Chiba, Osaka, Kobe Nagoya, and Yokkaichi, and longer periods ranging from 11-15 days in Mizushima and Oita.

In Western Australia, suppliers in Kwinana and Fremantle ports can offer VLSFO and LSMGO, typically with lead times ranging from 7-8 days. In New South Wales, LSMGO is readily available in Sydney, while HSFO supply is mostly available upon enquiry. In Victoria, Melbourne offers good availability of VLSFO and LSMGO, with ample VLSFO supply also found in Geelong. However, prompt HSFO supply can be limited in both Victorian ports.

In Queensland, Brisbane and Gladstone ports maintain sufficient stocks of VLSFO and LSMGO, with lead times of 7-8 days. HSFO availability remains constrained in Brisbane.

In New Zealand, VLSFO supply in Tauranga and Auckland is ample, and LSMGO supply remains satisfactory in Auckland. Anticipated adverse weather conditions in Tauranga from Tuesday to Friday may impact bunker operations.

Likewise, rough weather is predicted in the Thai ports of Koh Sichang and Leam Chabang on Saturday, potentially posing challenges for bunker deliveries in these ports.

South Asia

In several Indian ports, including Mumbai, Kandla, Tuticorin, Chennai, Cochin, Visakhapatnam, and Haldia, availability of VLSFO and LSMGO has been limited due to supply shortages. One supplier in Paradip is nearly depleted of VLSFO and LSMGO stocks.

Vessel movements and cargo operations at Haldia resumed on Tuesday following the passing of cyclone Remal, which transitioned from a cyclonic storm on Monday to a deep depression by Tuesday, as reported by GAC Hot Port News.

Adverse weather conditions are expected intermittently throughout the week at Sikka, Kandla, and Cochin ports in India, potentially disrupting bunker operations.

The Sri Lankan port of Colombo offers abundant VLSFO and LSMGO supply, with lead times of around two days recommended there. Adverse weather conditions may impact bunker deliveries at the port between Tuesday and Friday.

Middle East

At the UAE port of Fujairah, bunker demand for all grades remains low. However, availability for immediate delivery is still limited, with most suppliers requiring lead times of 5-7 days.

Similarly, at the UAE port of Khor Fakkan, lead times of 5-7 days are common among suppliers.

In Saudi Arabia's Jeddah port, there is enough supply of VLSFO and LSMGO. In Djibouti, some suppliers are facing shortages of VLSFO, although LSMGO remains unaffected.

LSMGO is easily accessible in Omani ports, including Sohar, Salalah, Muscat, and Duqm.

By Tuhin Roy

 

Photo credit and source: ENGINE
Published: 29 May 2024

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ENGINE: Americas Bunker Fuel Availability Outlook (23 May 2024)

Good availability in Houston; low demand in New York; availability remains tight in Rio Grande.

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RESIZED ENGINE Americas

The following article regarding bunker fuel availability in the Americas region has been provided by online marine fuel procurement platform ENGINE for post on Singapore bunkering publication Manifold Times:

  • Good availability in Houston
  • Low demand in New York
  • Availability remains tight in Rio Grande

North America

Bunker demand has started to pick up again in Houston this week, after subdued demand noted in the previous week. Availability of all grades is normal, and most suppliers are able to timely deliver stems due to good weather conditions.

Currently, most suppliers are able to offer VLSFO and LSMGO stems with a lead time of 3-4 days, down from last week’s 5-6 days. HSFO can also be secured within five days of lead time, a source says.

Prompt supply of VLSFO and LSMGO is also available in Bolivar Roads and Beaumont. However, bunker deliveries are subject to weather conditions and the availability of anchorage space in both locations, a source says.

Strong wind gusts of up to 29 knots were reported in the Galveston Offshore Lightering Area (GOLA) on Thursday morning. Despite this, bunkering was mostly unaffected in GOLA.

Demand has been good in GOLA this week, and several suppliers are offering stems for prompt dates as well as for dates further out.

Demand has dropped in the West Coast ports of Long Beach and Los Angeles. VLSFO and LSMGO availability have held better in both ports. One supplier can offer LSMGO stems with a lead time of 3-4 days. Lead times of 5-7 days are still recommended for the grade to ensure full coverage from suppliers and in order to avoid price premiums for faster deliveries, a trader said.

All grades remain in normal supply for prompt dates in the East Coast port of New York. Overall, bunker demand has slowed in New York this week.

Port operations and bunkering activities have returned to normal in Baltimore after the cargo ship Dali was successfully removed on Monday. The port has not yet seen a significant increase in bunker demand, but traders anticipate more demand in June.

Caribbean and Latin America

Bunker fuel demand has dropped in Panama's Balboa port this week compared to robust demand observed in the previous weeks. Product availability is good, with several suppliers able to supply all fuel grades with a lead time of 3-4 days.

Prompt availability of both VLSFO and LSMGO has been tight off Trinidad, and delivery prospects are mostly subject to enquiries, a source says. The earliest delivery dates with one supplier can stretch out to the first week of June.

VLSFO and LSMGO grades are available at Argentina’s Zona Comun anchorage, with recommended lead times of 6-7 days. Bunker demand has been good in the past week. While calmer weather conditions have enabled suppliers to deliver stems on time, adverse weather is predicted to hit the region on Thursday evening, potentially affecting bunker operations in Zona Comun.

Bunker fuel availability has been normal in the Brazilian ports of Santos, Salvador and Paranaguá. Several suppliers are able to offer stems with a lead time of 5-6 days. In other Brazilian ports like Rio de Janeiro, Rio Grande and Itaqui availability remains tight.

In Rio Grande, availability remains tight because of recent flooding in the area. Bunkering is available in the anchorage and berth areas, but these deliveries are subject to approval from the port authority, a source says.

By Debarati Bhattacharjee

 

Photo credit and source: ENGINE
Published: 24 May, 2024

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