The price of delivered 0.5pc low-sulphur fuel oil (LSFO) in Singapore has risen to a premium to 0.1pc low-sulphur marine gasoil (LSMGO) since 6 December, according to Argus data.
Despite being a superior fuel in terms of quality, LSMGO has been priced at an average discount of $5.09/t to LSFO since 6 December. LSMGO has typically been priced at a $40/t premium to LSFO over the past six months, Argus data shows.
Demand for LSFO has been rising strongly in Singapore with only three weeks to go until the 0.5pc sulphur cap on marine fuels imposed by the International Maritime Organisation. Issues over the fuel's incompatibility have led to a severe shortage of barges, which has sent spot prices soaring since the start of this month.
"We did not anticipate this complete reversal in price relationship", said one gasoil supplier. "Buyers are now more actively comparing prices for LSFO and LSMGO in the market."
Some shipowners prefer fuel oil over gasoil given that the latter's lower viscosity and sulphur levels might not suit their vessels' engines for extended use over longer distances. Additives and lubricants might resolve these issues but they come at a higher cost.
Time charter contracts typically stipulate the specific fuel oil and gasoil quantities that the charterer needs to redeliver the vessel with. Given the higher share of fuel oil onboard, demand for LSFO is higher, which further inhibits the market's ability to easily move from fuel oil to gasoil.
If gasoil remains cheaper than LSFO for a sustained period, buyers may turn more strongly to LSMGO — tightening availability of gasoil barges and threatening a repeat of the logistical issues that are currently hampering the LSFO supply chain.
By Sammy Six, Andrew Khaw
