Marine fuels suppliers in the Mediterranean region are looking to reduce their very-low sulphur fuel oil (VLSFO) inventories before an emissions control area (ECA) comes into force in May, with shortfalls predicted in April.
Under new rules from the International Maritime Organisation (IMO), sulphur output limits on vessels transiting the Mediterranean sea will drop to 0.1pc from 0.5pc on 1 May, meaning only those with sulphur-scrubbers installed will be allowed to use fuels comprising more than 0.1pc sulphur, such as VLSFO.
Market participants have said VLSFO supply could come under strain in April because the post-ECA demand drop-off will weigh on refinery margins, disincentivising refineries from raising output. Refining premiums for cif west Mediterranean VLSFO cargoes against front-month Ice Brent crude futures narrowed to a little over $9/bl on 20 March, from $13.50/bl in early February.
Steady falls in VLSFO production heading into May could, paradoxically, cause margins to rebound in April as vessels leaving the Mediterranean look to buy left-over product, creating a run on availability.
Refineries producing large amounts of VLSFO will begin to reduce production or switch to delivering to export markets, according to a trader. However, the global VLSFO pool supply remains ample. A recent influx of cargoes to Singapore, the world's largest bunkering hub, has come up against softening demand, weighing on worldwide values. Delivered VLSFO bunker prices at the city-state were assessed at $518.53/t on 27 February, a drop of nearly 10pc on the month and the lowest in three-and-a-half years.
