Demand for low-sulphur cracked and straight-run fuel oil has increased ahead of the International Maritime Organisation's (IMO) sulphur cap in 2020, widening spreads to high-sulphur.
Low sulphur fuel oil (LSFO) cargo prices reached a $8.25/t premium to high-sulphur fuel oil (HSFO) barges this week in Rotterdam, its widest since January, following a sharp increase in demand. The high-low premium has averaged just $4-5/bl since the start of 2018.
Belgium-based shipping company Euronav have purchased at least two straight-run fuel oil cargoes and a cracked fuel oil cargo for delivery to its Ultra Large Crude Carrier (ULCC) in the central Mediterranean. Euronav announced last month it would use one of its ULCCs to store 0.5pc sulphur marine fuel for its own consumption ahead of the 2020 sulphur cap.
The IEA expects a market of around 1mn b/d of new low-sulphur bunker blends to develop, as around 30pc of the 3.2mn b/d high sulphur fuel oil bunker market switches to fuels with a maximum sulphur content of 0.5pc by the January 2020 deadline.
Traders and shipping companies that are expecting high-low sulphur spreads to widen ahead of the IMO switch, are starting to stockpile low-sulphur fuel oil, while spreads are relatively narrow. For much of the last few years, low-sulphur fuel oil has been used in power generation but limited to just a few islands in Europe.
Low-sulphur straight-run, used up until now primarily as a refinery feedstock, has already started to see demand pick up as a blending component in 0.5pc sulphur IMO compliant marine fuel.
Priced largely as a differential to crude, low-sulphur straight-run fuel oil has traded as a premium to Brent crude last week, according to market participants, for the first time in at least a year.
Refiners will soon have to compete with marine fuel oil for low-sulphur fuels as a feedstock, pushing up prices. That includes vacuum gasoil (VGO), which is widely used by refiners to increase gasoline yields, but is expected to be a significant component in any IMO compliant bunker fuel. Argus' 0.5pc sulphur northwest European fuel oil calculated assessment, launched in November 2018, comprises 35-40pc low-sulphur VGO.
