Americas Bunker Fuel Demand Doldrums

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Shifts in supply availability and lessened overall bunker demand could limit the potential for an extended price rebound in the Americas in 2017.

Following the bankruptcy of containership owner Hanjin Shipping in August, pressure on container ship fleets to merge may intensify.  The bigger consolidated containership lines would have more bunker price bargaining power, but the price pressure would not, in turn, drive up global bunker demand.

US heavy bunker fuel prices continued to trace fuel oil cargo assessments closely in 2016 because heavy bunker fuel accounts for 80pc of US resid demand.  The Houston high-sulphur 380cst (HS380) price as a percent of Brent began to rebound from 49-63pc during the first eight months of 2016 and reached 74pc in November because of lower Russian residual fuel oil exports and stronger Singapore demand.  There is no resid refinery conversion capacity announced for 2017 in the US, which would reduce heavy bunker fuel production.  Provided bunker consumption is steady, and Russian fuel oil output continues to decline, US Gulf HS380 fuel oil prices could linger in the high 70s as a percentage of Brent.

The International Maritime Organization in October voted to reduce the marine fuel sulphur content in international waters from 3.5pc to 0.5pc starting on 1 January 2020.  The regulation will not have an impact on bunker prices in 2017.  But in 2020, demand for distillate fuel to blend into the bunker pool could spike against the backdrop of a sharp drop in resid demand.  The HS380 fuel oil price as a percent of Brent could drop to 20-30pc by the second half of 2019.

LNG for bunkering will continue to slowly penetrate the US bunker fuel market in 2017.  The US Energy Information Administration projects the US natural gas prices will gain by 31pc in 2017 from 2016 on the back of growing US domestic consumption and higher exports.  But even with the projected price increase, LNG on a per-tonne equivalent basis would remain at least $100/t cheaper than MGO.

Argentinian refinery YPF installed a coker at the 189,000 b/d La Plata refinery in September, and heavy bunker fuel production dropped.  The effect of the lower fuel oil production has not roiled pricing in Argentina because demand for fuel oil for power generation has been weak, but the cruise ship season in the first quarter could drive up bunker fuel prices in Argentina.

Mexican energy-sector reforms could theoretically open doors for additional bunkering companies to enter the local market.  But a barrier to entry has been limited oil tanker storage availabilities in Mexico.

Panama heavy bunker fuel oil sales, which were on the rise this year, could continue to grow as traffic through the expanded Canal ramps up.  As of October, the Canal was filling less than 60pc of the transit slots they had available for Neopanamax vessels.  Panama has sufficient third-party oil storage capacity to handle increased bunker demand.

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Source: Argus