Gibraltar Strait Container Growth Bodes Well For Mediterranean Bunker Demand

The Strait of Gibraltar's bunker market share may increase if it can get enough VLSFO at attractive prices. Image Credit: File Image / Pixabay

Container throughput is growing healthily in the Strait of Gibraltar, signalling what may be an opportunity for the Western Mediterranean to win a greater share of the bunker market.

Combined container volumes at Algeciras and Tanger Med almost reached 10 million twenty-foot equivalent units (TEU) last year, Alphaliner reported in its latest weekly note, as Algeciras saw a 5.7% gain to 5.05 million TEU and Tangier a 38.3% surge to 4.8 million TEU.

Shipping firms look set to expand operations further at both ports this year, the marine intelligence service reported.

Growth at that pace should be healthy for the Western Mediterranean's bunker market if it can source adequate supplies of very low sulfur fuel oil (VLSFO) at a competitive price.

Prices are moving in favour of the Mediterranean -- Gibraltar's VLSFO premium over Rotterdam has narrowed to $49.50/mt on Wednesday from $137/mt at the end of last year -- but there is further to go.

At the same time last year the premium for high sulfur 380 CST fuel oil at Gibraltar over Rotterdam was just $29.50/mt, according to Ship & Bunker pricing.

The Mediterranean is not in the best position to capitalise from IMO 2020, with a selection of mostly ageing, simple refineries with significant production of heavy fuel oil and less of the distillate components that can be blended into VLSFO.

The current absence of sweet Libyan crude from the market -- with its good potential for producing VLSFO components -- is also unhelpful.

Wide delivered VLSFO premiums over cargo prices may be part of what's keeping Gibraltar prices elevated.

On 24 January price reporting agency S&P Global Platts reported Gibraltar's delivered VLSFO premium over CIF Mediterranean cargo prices averaged $90.38/mt so far this year.

That compared with a $13.66/mt average premium for delivered Rotterdam VLSFO over FOB Rotterdam barges over the same period.

Bunker demand across Gibraltar, Algeciras and Ceuta is thought to total about 8 million mt/year, with Gibraltar taking about half of that amount.