According to BIMCO, The collapse of the oil market has triggered a decrease in the prices of marine fuels that comply with the IMO 2020 sulfur regulation (See Article: What is the IMO 2020 regulation), which provides some ease for shipowners in the unprecedented economic crisis.
“From the point of view of a shipowner or charterer, lower bunker prices provide a light of hope in bleak times. Perhaps less hopeful are bunker suppliers, who must now supply bunker fuels at a fraction of the price seen four months ago, “says BIMCO chief shipping analyst Peter Sand.
BIMCO data shows that simultaneous supply and demand shocks have driven bunker prices to fall to previous low levels with very low sulfur fuel (VLSFO) at $ 246 per MT on May 5 2020 in Singapore.
The current turmoil has brought down prices of low-sulfur marine oil (MGO LS) at the fastest pace recently, even outpacing that of the Great Financial Crisis and falling oil in 2014.
Since the MGO LS price peaked in Singapore at $ 744 per MT on January 8, 2020, the price has decreased 67% in 84 business days, settling at $ 243 per MT on May 5, essentially a collapse from the market in a couple of months.
In 2008, the MGO LS price peaked at $ 1,360 per MT and before beginning a prolonged decline, bottoming out at $ 354 per MT after 174 days, a 74% collapse from the peak.
While it took more than two years to establish a new peak at USD 1,075 per MT on April 11, 2011, prices never recovered to previous high levels.
Peter explained that the latest crises and price shocks serve as a reminder that the recovery is not as rapid as the collapse, and although the nature of the current crisis is different from previous ones, price recovery is unlikely to follow the V-shape curve.
“Marine bunker fuel prices in Singapore have collapsed at the fastest rate since the global financial crisis. If the past is something to go through in this case, the climb from the crisis will not come at the same speed as the descent from the peak, “says Sand.
The Post-IMO 2020 Reality High sulfur heavy fuel oil (HSFO) can also be used in some power plants, but the fleet equipped with scrubbers still generates most of the demand for HSFO. As of May 2020, the fleet equipped with scrubbers amounts to 2,893 ships, or 2.9% of the combined fleet in terms of ships, but equal to 15.6% of the total fleet when the deadweight ton is observed, as shown Clarksons data.
Bunker sales in Singapore illustrate how HSFO is still in demand, consisting of ships equipped with scrubbers. Sales for the first quarter were 12,716 tons, 83% of which were low sulfur fuels, while 17% were HSFO. In total, 8.8 million tons of VLSFO were sold, a jump of 83% from the fourth quarter of 2019, BIMCO said.
This dramatic change in bunker sales is seen similarly at the ports of Rotterdam and Panama.
In Rotterdam, Europe’s largest fueling center, the sales ratio of low sulfur to high sulfur fuel was 74% to 26%, with VLSFO accounting for 42% of total sales.
In Panama, 93% of the 1.3 million tons of the total bunker sold was VLSFO. Panamanian bunker sales highlight the problem of the unavailability of HSFO heavy fuel.
Bunker suppliers have adapted to the IMO 2020 demand, cleaning tanks, and storage to accommodate low sulfur fuels, making it increasingly difficult to obtain HSFO in the spot market.
When the hassle of obtaining HSFO is combined and the VLSFO-HSFO spread to extraordinarily low levels, some ships equipped with scrubbers are likely to even choose to burn VLSFO, BIMCO said.
“Bunker sales at major bunkering centers underscore the transformation that the IMO 2020 sulfur regulation has brought about. Prior to implementation, the industry was concerned about the availability of low sulfur bunker fuels. Now, in April 2020, the availability of HSFO seems to be the most pressing problem in some places, in addition to quality, ”says Sand.
Although the owners of the scrubbers have seen that their payback period has been extended substantially in recent weeks. Lower bunker fuel prices are making profits partly amid tough market conditions.
VLSFO prices in Singapore averaged $ 245 per MT in April, a massive saving compared to the January average of $ 664 per MT. Assuming a bunker consumption of 40 MT per day, ship owners will save USD 16,760 per day on the average for January and April, BIMCO explained.
With the lower cost of shipping, some companies have started sailing around the Cape of Good Hope on the Asia-Europe backhaul network instead of paying high tolls to transit the Suez Canal.
“The depth of the coronavirus crisis and the shape of any potential recovery will ultimately determine how oil and bunker prices will develop in the coming months. With the implementation of the OPEC + cuts, the demand for oil must now rebound to counter the massive oversupply, ”says Sand.
See the article “OPEC + G20: Oil price war ends with a historic agreement“