Oil traders are chartering more ships, while they are are trying to find fuel oil storage tanks in and around Singapore, the world’s top bunkering port, aiming to ensure compliance with the upcoming 2020 sulphur cap.
As Reuters reports, this move has increased lease rates for tank storage in Singapore, as well as the number of supertankers floating in Singapore and Malaysian waters. The latter is taking place because of the fact that traders are expecting a spike in prices for low-sulphur fuel oil (LSFO).
What is more, companies storing the fuel on landed tanks include oil majors Exxon Mobil, Chevron, BP, Repsol, Mitsui and Petrobras, as well as Petro Summit.
In addition, the expected price increase for LSFO is increasing storage take-up. Currently, LSFO is priced off existing fuel oils, but it is very likely to be priced off more expensive marine gasoil, once the new rules apply.
Moreover, demand is expected to grow in the coming months, as shippers test new products. As for Singapore, its sales of low-sulphur marine fuels achieved a record high in June.
Regarding onshore options, they are very constrained, because traders and storage operators are clearing out tanks as they convert HSFO storage space to LSFO.
Furthermore, the lack of space on onshore tanks, in addition to technical storage issues, has led traders to store the oil product on very large crude carriers (VLCCs) off Singapore and Malaysia.
As a matter of fact, traders and shipbrokers estimate there are at least 10 to 15 VLCCs storing LSFO, while another handful of similar-sized tankers are storing a mix of LSFO and HSFO.