- The delivered 380 CST bunker premium at key bunkering hub Singapore has soared to a record high as supply dynamics are constantly evolving ahead of IMO 2020.
- The cash premium for 380-cst HSFO jumped to $30.88 per tonne to Singapore quotes on Tuesday, up from $23.09 a tonne in the previous session.
- This exceeds the previous high of $24.31 per tonne on July 11, one of the first signs of the impact of a shift in global ship fuel rules set to occur in 2020.
- The premium of the front-month 380-cst HSFO swap to the second-month swap widened to a near-record of $36.25 a tonne from $29.50 a tonne in the previous session.
- Some barge operators and suppliers are in the process of converting their existing HSFO barges to LSFO barges or LSMGO barges in preparation for IMO 2020.
According to an article published by Reuters and Platts, cash premium for cargoes of 380-centistoke (cst) high-sulfur fuel oil (HSFO) in Singapore rose to a record high.
Cash premiums on a record high
According to data, boosted by intense buying interest amid shrinking supplies. The cash premium for 380-cst HSFO jumped to $30.88 per tonne to Singapore quotes on Tuesday, up from $23.09 a tonne in the previous session.
The latest record exceeds the previous high of $24.31 per tonne on July 11, one of the first signs of the impact of a shift in global ship fuel rules set to occur in 2020.
Premium boosted by Singapore HSFO supplies
The cash premium has been boosted by increasingly tight Singapore supplies of HSFO ahead of a shift in global ship fuel rules set to occur in 2020, three Singapore-based fuel oil traders said on Tuesday.
The sources declined to be identified as they are unauthorized to speak to the media.
The International Maritime Organization has mandated that ships use bunker fuel with a sulfur limit of 0.5% starting in 2020 from 3.5% currently, meaning the supply of 3.5% HSFO will lose value at the end of 2019 as the market moves to low-sulfur bunker fuels.
Regional refiners are producing less HSFO
Suppliers are also finding it unprofitable to ship in fresh cargoes of the fuel from amid a steeply backwardated market structure, the trade sources said. A backwardated market is one where prompt prices are higher than later-dated prices. The backwardation means shipping fuel oil long distances will cause the cargo to lose value during the voyage.
The premium of the front-month 380-cst HSFO swap to the second-month swap, also known as a time spread, widened to a near-record of $36.25 a tonne on Tuesday, up from $29.50 a tonne in the previous session, Refinitiv data showed. The 380-cst front-month time was last higher on July 31 at $38.25 per tonne, Refinitiv data showed.
Japan delivered 380 CST premiums over MOPS 380 CST HSFO averaged $51.22/mt in August, up 36% compared with an average of $37.66/mt in July, while Hong Kong delivered 380 CST premiums over MOPS 380 CST HSFO averaged $90.32/mt in August, up 61% compared with an average of $56.05/mt in July.
South Korea delivered 380 CST premiums over MOPS 380 CST HSFO averaged $121.72/mt in August, up 88% compared with an average of $64.88/mt in July and Shanghai delivered 380 CST premiums over MOPS 380 CST HSFO averaged $123.04/mt in August, up 138% compared with an average of $51.72/mt in July.
Tighter barging schedules
“Barging schedules are getting tighter… these few days have been quite crazy [in terms of premiums], no one wants to buy too unless they can’t help it,“ a Singapore bunker trader said.
Most suppliers were only able to offer earliest for September delivery dates amid tight barge and fuel availability, market sources said.
“There is a wide range of offers depending on delivery dates… there is almost no offer for August dates and even first week of September would require a higher premium compared with mid-September. People are generally reducing their HSFO stocks, there have also been lower arbitrage cargoes coming in this quarter.” another bunker trader said.
Lower inflow of HSFO
Singapore will see a total of about 2 million-3 million mt of fuel oil components in September from Europe and the US, but cracked fuel oil for the bunker market is limited, traders said.
The inflow of cracked HSFO cargoes will only be 1.1 million-1.2 million mt from Europe and the US, lower than expected, they said.
Cash differentials remain strong
Cash differentials in the Singapore HSFO market remained strong in recent weeks, while backwardation also remained steep, with little signs of easing in the near term, market sources said.
Regional supply tightness has also buoyed bunker premiums at key ports across North Asia. Overall high-sulfur bunker supply has tightened across Asia as the markets transit towards a lower-sulfur bunkering landscape in 2020.
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