The European fuel oil Hi-5 spread has risen to triple digits for the first time since the end of March 2020, reports Platts.
The widened spread
Reason behind the rise
The rise is said to be due to the low sulfur fuel oil supported by demand from the East and limited domestic production.
Highest spread
The spread between 0.5% sulfur FOB Rotterdam barges and 3.5%S FOB Rotterdam Barges — dubbed the Hi-5 — widened to $100.50/mt Feb. 4. According to S&P Global Platts data, it is the highest level since March 31, when it was assessed at $104.75/mt.
In recent weeks, 0.5%S marine fuel has been buoyed by Eastern demand and reduced runs in Europe limiting availability, while 3.5%S fuel oil continues to see thin demand from the start of the year, sources said.
Bunker fuel market
Similarly, the bunker fuel market continued to see a widening differential, with it hitting an 11-month high on Feb. 4 at $110/mt, Platts data showed.
Brent crude oil
VLSFO prices responded to strength in the Brent crude oil complex while HSFO prices had been somewhat stagnant, data showed, although demand had been reported as low in recent weeks, with some sources deterred by VLSFO’s higher prices.
IMO 2020 sulphur regulations
The Hi-5 spread has been under close scrutiny since the implementation of the International Maritime Organisation’s stricter sulfur regulations in 2020.
Since the beginning of last year, ships can only burn 3.5%S HSFO if an exhaust gas cleaning system (scrubber) is installed.
For ships without scrubbers, the sulfur cap was reduced from 3.5% to 0.5% on the high seas.
Scrubber economics
The Hi-5 spread, a key indicator of scrubber economics, has been weighed down since the start of the coronavirus pandemic, reaching its narrowest June 4 at $38/mt.
Shortly after the implementation of IMO 2020, the spread reached its widest on Jan. 3, 2020 at $321.50/mt.
According to a report published by the IMO, over 2,350 ‘scrubber’ systems have been reported to the organization globally.
In December 2021, scrubbers are likely to account for over 1 million b/d of 3.5%S FO, according to Platts Analytics.
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Source: Platts
