According to an Argus Media report, the prices of fuel oil with a maximum sulphur content of 1pc are edging towards parity with Brent crude values in Europe, as fresh demand from the shipping industry emerges ahead of the International Maritime Organisation’s (IMO) 0.5pc sulphur cap in 2020.
What’s the scenario?
- Prices of 1pc sulphur fuel oil have gained ground this year, as the product begins to attract demand from the shipping industry as a blending component to produce IMO-compliant 0.5pc sulphur fuel oil.
- Northwest Europe 1pc sulphur fuel oil cargo prices reached $63.18/bl on a fob basis yesterday, equating to a $0.34/bl discount against front-month Ice Brent crude. This is the closest they have come to Brent since 2003.
- Companies have begun storing 1pc sulphur fuel oil to be used in the marine fuel pool in 2020, unlike in previous years when the product’s main use was for power generation on European islands such as Cyprus and Malta.
How will this effect?
With firmer demand for 1pc sulphur fuel oil from the shipping industry, utilities will have to pay higher premiums over high-sulphur fuel oil, the most liquid residual product in Europe.
The premium of 1pc sulphur fuel oil to high-sulphur Rotterdam barges reached $32/t in the swaps market yesterday, after both products settled at parity in February.
Refineries producing Compliant Fuel
Refineries that previously produced 1pc sulphur fuel oil have begun focusing on output of 0.5pc fuel oil, owing to more profitable margins for the latter. Prices of 0.5pc sulphur fuel oil were around $71/bl in the European spot market at yesterday’s close, a $7/bl premium to Ice September Brent, market participants said.
- Producers of 0.5pc sulphur fuel oil in Europe have sold at least ten 30,000t cargoes of IMO-compliant fuels and blending products to the shipping firm Euronav for floating storage.
- Euronav will take its 442,000t ultra large crude carrier (ULCC) to Singapore to use as floating storage of 0.5pc sulphur fuel oil after receiving the cargoes it purchased off Malta.
- Italian refiners Iplom and Saras, Nigeria’s Sahara and Israel’s ORL sold the cargoes to Euronav.
- Companies in Europe are also seeking 0.5pc sulphur fuel oil shipments to Singapore, where storage economics are currently viable.
- Singapore is the world’s largest bunkering hub with monthly marine fuels sales of around 4mn t.
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Source: Argus Media
