Singapore spot bunker demand dries up as IMO looms

Market: Oil products
12/11/19

Spot supplies of high-sulphur fuel oil (HSFO) and low-sulphur fuel oil (LSFO) are drying up in Singapore as more buyers turn to term contracts ahead of the global implementation of the IMO 2020 sulphur cap.

Most shipowners have not installed scrubbers and are instead planning to burn whatever HSFO supplies they still have on board their vessels by Christmas at the latest.

"We buy less HSFO on spot these days, as most of our bigger vessels were filled up recently before the persistent prompt constraints in Singapore", one buyer said.

Singapore prompt supplies of HSFO started to tighten significantly in July as the market adjusted to the IMO rules, which will cap sulphur content in marine fuels at 0.5pc on 1 January, down from 3.5pc now.

Delivered bunker premiums have stayed elevated levels on concerns about supply availability in Singapore, the world's largest bunker port. The premium of delivered 380cst HSFO to cargo prices has averaged $81/t so far in November, a tenfold increase from the average premium in the first six months of this year, according to Argus data.

"The switchover is making it difficult to optimise barges, and the few players that still have HSFO in storage tanks and are able to deliver it are basically determining prices and earning very good margins. Prices have not yet come down in line with fundamentals", a trader said.

The tightness in the HSFO market in Singapore has also affected other ports in Asia, with several Chinese ports struggling with terminal and barge congestion. Delivered HSFO in Shanghai, Zhoushan and Hong Kong has averaged a $41/t, $24/t and $15/t premium to Singapore so far this month, Argus data show.

Some shipowners have instead sought to bunker in Fujairah, where HSFO bunker prices are nearing a $100/t discount to Singapore, mainly as a result of abundant regional supplies.

Demand for LSFO has picked up strongly in Singapore since early October. Consumption is no longer limited to those using the fuel for testing purposes or voyages to China's emission control areas (ECAs). Owners have instead started cleaning out their tanks in earnest and are now consuming larger sized LSFO stems for longer journeys.

A growing share of LSFO demand is being met by supplies that were earlier locked in on a term basis, with fewer owners willing to buy on the spot market. "One must be mad to buy LSFO on the spot market", said one buyer, referring to the higher prices of spot supplies.

This trend will intensify further in the coming months, as shipowners grow increasingly concerned about LSFO availability beyond the first quarter of 2020. This will lead buyers to tie up the majority of their requirements for IMO-compliant fuels through term contracts for the second quarter and beyond.

Owners have agreed term contracts for LSFO until March at discounts of around $40-50/t to gasoil cargo prices. Spot prices for LSFO have averaged a discount of $30/t to delivered low-sulphur marine gasoil (LSMGO) so far in November, according to Argus data. "Since quite a few barges are still getting cleaned and are not in service yet, some LSFO stems for prompt delivery have been sold at discounts of up to $15-20/t to LSMGO after trading hours", another trader said.

"The majors have been locking in term in order to secure volume, which we have done too, but we have made sure to have some HSFO and LSFO spot barrels for sale as well in order to enjoy these high premiums", a supplier said.

Argus has reported an average of 16 bunker deals a day so far in November for all grades, down from 24 during October, reflecting lower spot market activity.

By Sammy Six

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