At the Americas Sulphur Cap 2020 Conference in Houston on 5-6 March, Argus Media oil pricing analyst Stefka Wechsler will highlight the fuel price factors influencing compliance decisions
At the Americas Sulphur Cap 2020 Conference in Houston on 5-6 March, Argus Media oil pricing analyst Stefka Wechsler will highlight the fuel price factors influencing compliance decisions
People buying fuel for shipping are expecting a turbulent time as the market prepares for the 2020 sulphur cap. That is the pared-down message behind forward curves – the current price at which a deal for future delivery can be struck – for both high-sulphur fuel oil and low-sulphur distillates, according to the most recent analysis from price reporting agency Argus Media.
“As the market gains clarity on product availabilities, the shapes of the residual fuel oil and diesel forward curves have changed,” says Argus oil price analyst Stefka Wechsler. In mid-2018, the curve for US Gulf 3% sulphur fuel oil was showing a 23% decline between July 2019 and January 2020. In January that curve was trending upwards by 1%. Similarly, the charts for US Gulf ultra-low sulphur diesel (with 0.001% sulphur) have flipped from a 5% decrease to a 1% increase between February 2020 and December 2021.
“Forward curves are not price forecasts, but they are signalling confidence in the market that the expected residual fuel oil surplus will be absorbed and nervousness about distillates’ scarce availabilities,” says Ms Wechsler.
"The spread will taper off by Q1 2021, as supply and infrastructure problems are resolved and more scrubbers are installed on vessels"
They may not be forecasts, but the changes do indicate increased clarity on fuel pricing as 2020 nears. Suppliers including BP, Shell and ExxonMobil have been testing blends and are now pegging prices for compliant fuels, while there is evidence that trades are emerging. Ms Wechsler notes that Argus’ Singapore price reporter has been seeing deals for 0.5% sulphur marine gas oil (MGO) since mid-December. In Dubai, the company has received inquiries for compliant fuel oil in Fujairah.
“The spot 0.5% sulphur marine fuel trade is expected to be liquid by the Q3 2019,” says Ms Wechsler.
Prices are important, but for those comparing the cost of compliance options, it is the spread between complaint fuels that is crucial. Ms Wechsler forecasts that the spread between low-sulphur and high sulphur fuel oil will widen, starting in the Q4 2019.
Tapering spread
“The spread will taper off by Q1 2021, as supply and infrastructure problems are resolved and more scrubbers are installed on vessels,” she says. “Argus Consulting Services expects the spread to hover between US$350 and US$370 a tonne in 2020.”
That relatively short period of turbulence belies the fundamental change that will hit the bunker market on 1 January 2020. According to Argus Marine Fuels Outlook, high-sulphur fuel oil will plummet from around 80% of global marine fuel demand in 2018 to 30% in 2020. MGO, conversely, will surge from 20% to 55% of the market, dropping to 43% in 2021 as production of low-sulphur fuel oil ramps up; fuel oil with 0.5% sulphur will meet 15% of global demand in 2020 and 25% the following year.
Argus’ HFO projections also reveal its assumptions regarding non-compliance. In 2020, fuel oil representing 14% of global marine fuel demand will be used by vessels without scrubbers. In 2021 that is expected to fall slightly to 11%.
With around 10 months to go, the situation remains complex, says Ms Wechsler. Pricing, demand and availability will continue to evolve rapidly as the fateful day approaches.
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