As the world expected that 2020 would be focused on the long awaited 2020 sulphur cap from the International Maritime Organization (IMO), the spotlights have turned to the COVID-19 and the OPEC+ oil price war, BIMCO’s Chief Shipping Analyst Peter Sand commented.
Specifically, the global economic growth outlook remains bleak, with commodities declining across the board and most recently, the West Texas Intermediate (WTI) reference oil future drew headlines as it crashed into negative territory at USD -37.63 per barrel on 20 April 2020.
Peter Sand stated that
From a shipowner’s or charterer’s perspective, the lower bunker prices provide a glimmer of hope in bleak times. Perhaps less hopeful are the bunker suppliers, who must now supply bunker fuels at a fraction of the price seen four months ago.
The International Energy Agency (IEA)’s forecasts sees oil demand collapsing in the second quarter of 2020, decreasing by 23.1 m/bpd compared to last year, and a drop of 9.3 m/bpd for the full year of 2020. In addition, the supply-demand imbalance leads to a steep uptick in crude oil stockpiling, which will continue to drag on the oil product prices in the months to come.
The OPEC+ cuts amounting to 9.7 million barrels per day (m/bpd), officially in motion since 1 May 2020, have caused prices to tick upward once again. But in the short-term, it will not be enough to balance out the unparalleled demand destruction.
In the meantime, the oil and bunker fuel market have turned upside down. This has been the result of high oil market volatility, which has surpassed volatility of equity markets. The simultaneous supply and demand shocks have sent bunker prices racing towards previous low levels with very low-sulphur fuel oil (VLSFO) trading at USD 246 per MT on 5 May 2020 in Singapore.
Peter Sand added that the current upheaval has collapsed marine gas oil low-sulphur (MGO LS) prices at the fastest pace in recent memory, even exceeding the demise of the Great Financial Crisis and oil crash in 2014. Since the MGO LS price peaked in Singapore at USD 744 per MT on 8 January 2020, the price has decreased 67% in 84 workdays, settling at USD 243 per MT on 5 May, essentially a market breakdown in a couple of months.
Marine bunker fuel prices in Singapore have collapsed at the fastest rate since the Global Financial Crisis. If the past is anything to go by in this case, the ascent from the doldrums will be nowhere near the same rate as the descent from the peak.
Concerning the IMO 2020 sulphur cap, it came into force on January 1, 2020. High-sulphur fuel oil (HSFO) can also be used in some power plants, but the scrubber-fitted fleet still generate the bulk of demand for HSFO. As of May 2020, the scrubber-fitted fleet stands at 2,893 ships, or 2.9% of the combined fleet in terms of ships, but equal to 15.6% of total fleet when looking at deadweight tonne.
HSFO is still in demand, as seen in Singapore’s bunker sales. Specifically, it is reported that sales for Q1 came in at 12,716 tonnes, 83% of which were low-sulphur fuels, while 17% was HSFO. In total, 8.8 million tonnes of VLSFO were sold, a jump of 83% from the fourth quarter of 2019. This dramatic change in bunker sales is similarly seen in the ports of Rotterdam and Panama. In Rotterdam, the largest bunkering hub in Europe, the low-sulphur to high-sulphur bunker fuel sales ratio came in at 74% to 26%, with VLSFO accounting for 42% of total sales. In Panama, 93% of the 1.3 million tonnes of total bunker sold was VLSFO.
On the other hand, the Panamanian bunker sales highlight the issue of HSFO unavailability. Bunker suppliers have adjusted to the IMO 2020 demand, cleaning tanks and storage to accommodate low-sulphur fuels, which is making it increasingly difficult to source HSFO in the spot market. When combining the hassle of sourcing HSFO and the VLSFO-HSFO spread at extraordinarily low levels, it is likely that some scrubber-fitted ships could even opt to burn VLSFO.
Sand noted that
Bunker sales in major bunkering hubs underscores the transformation that IMO 2020 sulphur regulation has brought with it. Prior to the implementation, the industry was worried about the availability of low-sulphur bunker fuels. Now in April 2020, the availability of HSFO seems to be the most pressing issue in some places – next to that of quality.
For the matter of scrubbers, it is commented that the owners saw their investment payback period extended substantially in recent weeks, it is not all cloudy days when looking past the scrubber economics. The lower bunker fuel prices are partly buoying earnings amidst challenging markets conditions.
The depth of the coronavirus crisis and the shape of any potential recovery will ultimately determine how the oil and bunker prices develop in the coming months. With OPEC+ cuts implemented, oil demand must now recover to counteract the massive supply overhang,
… Sand concluded.