ARA faces HSFO barge loading delays

Longer barge queues to load high-sulphur fuel oil (HSFO) in the Amsterdam-Rotterdam-Antwerp (ARA) could be a result of preparations for the International Maritime Organisation's (IMO) sulphur cap in 2020 — including a switch in storage to accommodate more low-sulphur fuel, marine fuel suppliers told Argus.

"Bunker barges are queuing up to five days at loading terminals," one supplier told Argus. This compares with normal waiting times of less than one day. The supplier suggested that pressures from the regular very large crude carrier (VLCC) fuel oil shipments to Asia-Pacific from the hub were now felt more strongly in the market.

Other suppliers have advised traders about HSFO loading delays from refineries of up to three to four days. Several suppliers in northwest Europe were not willing to offer product in the last two days as they were focused on covering all incoming orders, a trader in ARA told Argus. As a result, the trader said he avoided buying too much from one supplier to spread the risk.

The loading delays are causing ARA to lose bunker sales to nearby ports, where price are typically higher, although supplies in other ports such as Hamburg, Germany, are decreasing too.

One supplier said a "fundamental change" in the physical fuel oil market started last week. But he expects HSFO shortages and queues to be the new norm as the deadline to the IMO cap approaches. Refiners in the region will produce less HSFO and more IMO compliant low-sulphur fuel oil (LSFO) in the lead up to 2020, which will tighten supplies in ARA further, he said.

He also pointed to a decrease in HSFO storage capacity to make room for new compliant fuels as one of the reasons for the supply tightness and delays. The shift in products stocks has likely started a year ago, after the HSFO forward curve swung into backwardation in late 2016, when the IMO agreed on the sulphur cap. This transition is making it more difficult for suppliers to react to sudden shifts in demand.

The US sanctions announced in January and imposed in May against Venezuelan state-owned oil company PdV have also contributed to a tighter HSFO market in Europe. Venezuela was the second largest supplier of residual fuel oil to the US last year with 2.4mn t, behind Canada. Europe shipped most of its fuel oil to the Americas, with the bulk of the cargoes going to the US, in April-May.

In Hamburg, prompt delivery of 380cst high-sulphur fuel oil (HS380) — the most sold bunker fuel grade — was offered yesterday at $450-470/t, representing a 10-15pc premium to the price of $412/t offered for longer-term deliveries.

Vienna-based consulting firm JBC Energy forecast 0.5pc sulphur fuel oil and marine gasoil (MGO) will make up the majority of bunker demand when the IMO limit is enforced, and around 2mn b/d of HSFO demand will switch to compliant fuel almost overnight in 2020.

Under the new IMO regulation, ships must limit sulphur emissions in exhaust fumes to 0.5pc, down from a current maximum of 3.5pc. Shipowners will either have to burn new 0.5pc marine fuels, use MGO or run on LNG to comply with the cap. They can also fit ships with exhaust scrubbers to continue to burn HSFO.