Record VLSFO bunker price rise sparks credit concerns

The outright price of delivered very-low sulphur fuel oil (VLSFO) bunkers in Singapore rose by $63.90/t to $858.50/t today, a record surge since Argus started assessing the grade on 1 October 2018.

Bunker prices rose firmly in line with crude prices, which reacted to an escalation of the ongoing military conflict between Ukraine and Russia.

Ice Brent futures at 16:30 Singapore time reached $111.14/bl, a daily increase of $10.66/bl.

Several market participants expressed concern over credit lines, which do not necessarily go up when prices rise. "Suppliers and traders will likely be hesitant to increase credit lines to owners and charterers, effectively reducing their buying options," a London-based broker said.

A company with a credit line of $1mn, for example, at today's price, would only be able to buy 1,165t of product.

Concerns are mounting over payments for vessels loading cargo from Russia, which may in turn result in an inability to pay for bunkers. This could then have severe negative ramifications for traders, who play a key role in providing credit to the market.

A possible credit squeeze was also feared ahead of the 0.5pc sulphur mandate by the International Maritime Organisation (IMO) which went into effect on 1 January 2020. Those fears quickly subsided because of the Covid-19 pandemic, but are now resurfacing as a global economic recovery coincides with war in Europe which has sent crude prices soaring.

By Sammy Six