According to Reuters, shipping and marine fuel suppliers say expected technical issues, such as damage to engines from blending different streams of very low sulphur fuel oil (VLSFO), have proved easier to resolve.
What is more, as the COVID-19 pandemic affected global oil prices and slashed demand, prices of VLSFO slid along with those of other products.
The impact of the transition to lower sulphur fuels was partly softened by the COVID-19 pandemic, noted ING. As the bank explained, lower refiner output of road transportation fuels like gasoline and diesel during the lockdowns helped “ensure enough VLSFO availability for the shipping industry”.
Nevertheless, with gasoline demand is increasing after the reopening of economies, with VLSFO supplies tightening throughout the remainder of the year if a resurgence in cases does not lead to new lockdowns.
Namely, industry participants had expected vessels to switch to burning gasoil to comply with the rules, but a jump in VLSFO output has seen more ships adopt that fuel instead, as a cheaper and more operationally familiar fuel.
However, with the market weighed down by increasing inventories amid increasing output, the shipping industry’s preference for VLSFO has offered little support to prices, said ING, and it has performed more weakly than other marine fuels.