- Liquidity in the derivatives markets along with testing and stockpiling demands increased throughout the year.
- Singapore premiums for 0.5%S to the Mean of Platts Singapore 380 CST HSFO kept rising in the month, hitting $115.60/mt May 31, the record high since Jan 2019.
- 10 VLCCs taken to store low sulfur components partly because the vessels have onboard heating facilities.
- Refiners in Amsterdam-Rotterdam-Antwerp hub are confident to offer any type of bunker fuel customers demand at the bunker hub of Rotterdam.
- The Northwest European fuel oil hi-lo soared through May as 1% fuel oil clips were diverted to the 0.5%S blending pool, tightening the availability for 1% fuel oil.
- USGC Marine Fuel 0.5%S in May was assessed at the end of the month at a premium of $5.60/b to USGC HSFO, up from $3.85/b at the end of April.
- The widening gap between 1%S fuel oil and 3.5%S fuel oil globally has led to higher differentials for Marine Fuel 0.5%S.
Ahead of the maritime industry’s new sulfur cap starting in January 2020, interest for storing key components for blending 0.5%S marine fuel ramped up around the world in May, reports Platts.
As testing and stockpiling demands increased throughout the year, liquidity in the derivatives markets, which S&P Global Platts began assessing May 2, increased.
The Asian low sulfur fuel oil market extended the strength further in May, while traders and bunker suppliers in the region kept building their stockpiles around Singapore.
As a result, Singapore premiums for marine fuel 0.5%S to the Mean of Platts Singapore 380 CST high sulfur fuel oil kept rising in the month, hitting $115.60/mt May 31, the record high since Platts launched the assessment January 2 this year, Platts’ data showed.
VLCCs for storing LSFO components
Stocks of low sulfur fuel oil components increased to 3 million mt or more around Singapore as fuel oil traders prepared for the new sulfur cap, market sources said.
“About 10 VLCCs are taken for storing LSFO,” a trader based in Singapore said. Market sources said stocks had been around 1 million mt in early March, while about three to four VLCCs had been taken for storing LSFO components.
Why VLCCs chosen to store?
VLCCs have found favor with traders and bunker suppliers looking to store low sulfur components partly because the vessels have onboard heating facilities.
Low sulfur components in Asia typically have a high pour point, requiring these materials to have heating facilities in the supply chain.
Some of the landed terminals were also taken to store low sulfur fuel oil components, market sources said.
LSFO components stored around Singapore
The LSFO components stored around Singapore include
- low sulfur crude oil,
- light cycle oil,
- vacuum gasoil,
- slurry oil,
- low sulfur waxy residue,
Increase in price along with demand
In line with the rise in stockpiling demand, prices of low sulfur components have also gone up in Singapore.
Thailand Bangchak Petroleum recently sold 30,000 mt of low sulfur waxy residue cargo with maximum 0.3% sulfur for loading over early June from Sriracha at a premium of $85-$90/mt to the Mean of Platts Singapore 180 CST high sulfur fuel oil assessments FOB, Platts reported previously. The premium was in $50s/mt to the MOPS 180 CST for second half of March loading cargo.
Not much of spot demand
Meanwhile, demand from shipping companies has yet to emerge. “There is not a lot of spot demand [for 0.5%S delivered bunkers] now as it is still early, shipowners still have half a year to go,” a bunker supplier told Platts recently.
“But the interest is there and some customers have already started to take some parcels for vessel testing, especially for Q3 period,” the supplier added.
Besides, demand for low sulfur fuel oil from power companies in Japan and South Korea has been muted as they have shifted to LNG and as weather got mild, traders said.
Activity has started in the 0.5%S European marine fuel market as interest for physical deliveries of 0.5%S kicked into gear along with stronger demand for components for 0.5%S blending.
Some 0.5%S marine fuel barge clips have begun to be tested in the Amsterdam-Rotterdam-Antwerp hub, and availability for spot fuel oil storage at tanks in the region has been few and far between.
ARA ready to fulfill customers demand
Refiners in ARA are confident they will be able to offer any type of bunker fuel customers demand at the world’s second largest bunker hub of Rotterdam, not just the new compliant 0.5%S RMG.
Futures trading expected to gain traction
The FOB Rotterdam Marine Fuel 0.5%S barge was assessed at a premium of $61.25/mt to the FOB Rotterdam 3.5% fuel oil barge on May 30, up from a premium of $58/mt on May 1st.
While there have not yet been any physical bids or offers in the Platts Market on Close assessment process, a relatively active market was seen for some of the futures contracts which settle based on the Platts physical 0.5%S assessments.
Calendar 2020 trades again concluded in the range of a $180-$203/mt premium to high sulfur fuel oil. 0.5%S physical and futures trading is expected to gain traction by the trading community from the start of Q3.
Availability of 1% fuel oil tightened
In the blending market, the Northwest European fuel oil hi-lo soared through May as players began to divert 1% fuel oil clips to the 0.5%S blending pool in both Europe and Singapore, tightening the availability for 1% fuel oil.
This sent the premium of 1% FOB NWE cargoes to a high of $32.50/mt above the 3.5% FOB Rotterdam barges on May 29, the highest value since January 2017, and European traders expect this value to remain on an upward path through 2019.
West African grades earmarked as favorable
West African low sulfur crude cargoes remain in fierce competition in Europe and globally as refiners experiment to produce 0.5%S blends, with West African grades earmarked as favorable to produce compliant 0.5%S marine fuel.
One East Mediterranean refiner resorted to testing the more abundant WTI Midland crude this May to develop a 0.5%S blend.
Tighter 0.5% S availability
However, there is stiff competition among Mediterranean refiners with high-quality product on offer, particularly among the West and Central Mediterranean refiners who have offered 0.5%S RMG bunker fuel for testing with viscosity between 340-380 CST.
Fuel oil traders have started considering the possibility of a handysize cargo arbitrage flow from the West and Central Mediterranean to the East Mediterranean bunker hubs, as 0.5%S is expected to be in tighter availability on less complex refinery capacity in the East Mediterranean.
A major physical bunker supplier in Europe also had its first customers requesting 0.5%S blends, when until now shipowners have been tentative to offer their 2020 hand. This supplier is looking at obtaining fuel oil storage to blend their own 0.5%S in the Mediterranean.
USGC Marine Fuel 0.5%S in May widened relative to USGC HSFO on a widening global gap between LSFO and HSFO.
USGC Marine Fuel 0.5%S in May was assessed at the end of the month at a premium of $5.60/b to USGC HSFO, up from $3.85/b at the end of April.
Physical trade set premium
The premium in the previous month was set by a physical trade in the Platts Market on Close assessment process between Vitol and Motiva. There have been no physical positions in the MOC process for USGC Marine Fuel 0.5%S since May 6, S&P Global Platts data showed.
While physical activity on Marine Fuel 0.5%S slowed, Platts launched swaps assessments for Marine Fuel 0.5%S in the USGC May 2, and the first trading activity on exchanges occurred on May 9. The first trade was a differential between USGC Marine Fuel 0.5%S and USGC HSFO for calendar 2020 at $25.50/b.
Uncertainty around 0.5%S prices in the US
Nearly all swaps trades so far have traded as a differential to USGC HSFO for calendar 2020. This differential since trading has moved as low as $24.50/b, and as high as $27.70/b. The last trade, heard done on May 29, was at a differential of $27.25/b.
Uncertainty around prices in the US for the 0.5%S market have led to wide fluctuations between marine fuel 0.5%S and HSFO.
One US trader said that the widening gap between 1%S fuel oil and 3.5%S fuel oil globally has led to higher differentials for Marine Fuel 0.5%S.
At the end of May, open interest for 0.5%S swaps instruments on both ICE and CME totaled 2.424 million barrels, ICE and CME data showed.
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