Bunker demand moves towards MGO in ARA

Shipowners have increasingly turned to 0.1pc sulphur marine gasoil (MGO) in the Amsterdam-Rotterdam-Antwerp (ARA) hub as its premium to 0.5pc sulphur marine fuel oil (0.5pc fuel oil) has narrowed.

Last year, MGO was forecast by Opec and the IEA to become the most popular bunker fuel grade in 2020. But around the implementation date of the International Maritime Organisation's (IMO) 0.5pc sulphur cap on 1 January the new 0.5pc sulphur marine fuel oil blends (0.5pc fuel oil) became the fuel of choice. Towards the end of January, demand switched towards MGO with several bunker suppliers in ARA selling about the same volumes of MGO as 0.5pc fuel oil.

In January, a bunker supplier in ARA's sales were 44pc of MGO and 43pc of 0.5pc sulphur marine fuel oil (0.5pc fuel oil). MGO demand had risen from 26pc in December and 25pc in November. The supplier's 0.5pc fuel oil demand had dropped from 58pc in December. In November, its combined demand for 3.5pc sulphur marine fuel oil (3.5pc fuel oil) and 0.5pc fuel oil was 51pc. Demand for 3.5pc fuel oil dwindled in December as the sulphur cap approached.

Another bunker supplier's MGO sales were even stronger in ARA towards the end of January, when 70pc were MGO and 30pc were of 0.5pc fuel oil. The supplier's share of MGO sales went up from 50pc of the total at the beginning of January, and 10-15pc in December. The supplier received so few enquiries for 3.5pc fuel oil that it stopped supplying the grade in December.

A third supplier's sales were split 50:50 between MGO and 0.5pc fuel oil in late January. The supplier made more deals for MGO, but the deals for 0.5pc fuel oil were of larger quantity, so overall demand was equally split between the two low-sulphur fuels.

But there were also bunker suppliers with higher demand for 0.5pc fuel oil than MGO in January. The sales of one firm consisted 80pc of 0.5pc fuel oil, 10pc of MGO and 10pc of 3.5pc fuel oil.

The increase in demand for MGO from November and December to January was mostly price-driven. The average premium of MGO over 0.5pc fuel oil narrowed from $62/t in November to $43/t in December and $18/t in January.

Some shipowners prefer MGO because of its lower sulphur level and higher calorific value. As most MGO sold in ARA has a sulphur content of 0.1pc, it is also compliant with 0.1pc sulphur capped emission control areas (ECAs) in northwest Europe and North America. And MGO generally has a 3pc higher calorific value than 0.5pc fuel oil, according to fuel research company Integr8 Fuels, which makes it preferable to shipowners that assess the performance of their fuel purchases based on its energy value rather than just price.

Whether to opt for 0.5pc fuel oil or MGO could also depend on a vessel's fuel tank space allocated to the various grades, the preference of the chief engineer of the vessel and the tuning of the vessel's engine towards burning one or the other. So price, sulphur level and calorific value are not the only determinants of MGO's value against 0.5pc fuel oil.

By Erik Hoffmann