The following is text of a news release from BIMCO:
(LONDON) — The oil market has recently been shaken up by geopolitical events, but volatility in the price difference between low and high sulfur fuel cannot be explained by that alone – the uncertainty is the chaos factor.
The uncertainty of the upcoming International Maritime Organization 2020 sulfur cap regulation (IMO 2020) is having a big impact on the bunker market. Whereas the price for marine gas oil low sulfur (MGO LS) has largely remained stable, the price for high sulfur fuel oil (HSFO) has been become increasingly more volatile in recent months. The HSFO-MGO LS price spread has, in some ports, widened to levels exceeding the actual price for HSFO.
The oil market has remained on edge in recent months with plenty of market volatility to go around. The bunker fuel oil market is normally directly correlated to the developments in the crude oil market, but recently IMO 2020 has added a seemingly disruptive interference with the pricing of bunker fuel on top of it.
As people in shipping are painfully aware, in less than two months, shipowners are no longer allowed to burn fuel oil with sulfur emissions above 0.5 percent, unless a scrubber is working on board. This presents a massive challenge for the industry, where the vast majority of ships are operating on 3.5 percent HSFO.
“The bunker price spread illustrates the tumultuous ride that the bunker market has endured in the last couple of months and similarly, the spread illuminates why the market is filled with uncertainty about the future. From Oct. 1 to Nov. 1, the spread for HSFO-MGO LS in Rotterdam spread widened 21 percent, from USD 229 to USD 277 per metric tonne,” said BIMCO’s chief shipping analyst, Peter Sand.
MGO LS is, as all other bunker fuels, exposed to underlying oil market shocks, but has exhibited less volatility and fluctuated around the same price range in 2019. Conversely, price volatility of HSFO has increased in recent months with significantly greater fluctuations in price.
BIMCO members can dive into the fluctuations further using the bunker pricing tool available on the BIMCO website at the market reports section. It shows the bunker fuel prices in 32 ports around the world, based on daily information supplied by MABUX.
A quick review of the market can shed some light over recent developments. Seemingly, lightning struck the HSFO market toward the end of June over the course of 14 days.
“Geopolitical events, such as the attack in Saudi Arabia, certainly impose shocks on the bunker oil market, but recent movements in the HSFO-MGO LS spread cannot solely be laid at the feet of geopolitics. Seemingly, the uncertainty of the IMO 2020 regulation is disrupting the normal market conditions to a certain extent. Anecdotal evidence suggests that, in some ports, greater efforts have been made to store MGO LS on bunker barges, tightening the market for HSFO,” Sand said.
Availability of fuels will vary greatly in between ports and greatly influence bunker prices. Some ports, such as Singapore, are increasingly focused on storing MGO LS. At the Panama Canal, one of the main bunkering hubs in Central America, a similar development has taken place. MGO LS prices have remained relatively stable.