Singapore scrubber spread widens on supply imbalance

The premium of very-low sulphur fuel oil (VLSFO) bunkers in Singapore over the high-sulphur fuel oil (HSFO) grade, also called the scrubber or Hi-5 spread, is nearing record-high levels because of a shortage of VLSFO and ample HSFO supplies.

The scrubber spread on 26 May was assessed at $359/t, or just $11.50/t shy of its all-time high of $370.50/t on 2 January 2020 when the International Maritime Organisation's sulphur cap took effect, according to Argus data.

This spread is a key indicator of scrubber economics, with values above $100/t typically assumed to be high enough to prompt a vessel to install a scrubber. The current high values translate into substantial savings for those shipowners with scrubbers already installed.

Singapore has seen a severe shortage of VLSFO coming into the city-state in May because of a steep backwardation, with prompt prices at a premium to forward values, in Asia making arbitrage flows from west of Suez unviable.

This has resulted in record-high premiums of VLSFO amid high outright prices, with Argus on 26 May assessing the grade at $1,000/t for deliveries before 7 June.

"We are facing skyrocketing prices and difficulty to secure prompt barrels of VLSFO", said one buyer.

HSFO cargoes have been building in Singapore, mainly because of an influx of supplies from the UAE and Iran this month as both countries imported more cheap Russian fuel oil.

This in turn has resulted in falling premiums of HSFO and lower outright prices on some days despite higher crude and paper values.

The high premium of VLSFO over HSFO, or rather the steep discount of HSFO over VLSFO, might not actually result in a rush to install scrubbers.

"It is difficult to change the installations on the vessels, with a very long lead time of up to 12 months", remarked another shipowner.

By Sammy Six