LSFO Values: Readying for Lift Off?

Wednesday May 22, 2019

Low sulfur fuel oil (LSFO), defined as having 1% maximum sulfur content, saw its front month cargo swaps trade at $435 a metric tonne at the start of the week, putting it $35.5/mt above high sulfur barge swaps.

Players have looked elsewhere to explain the rise as demand for the 1% sulfur grade is usually limited to a handful of Mediterranean power plants.

According to price reporting agency Argus Media, the reason for the greater Rotterdam premium between the two fuel oil grades can be found in the coming 0.5% sulfur rule on bunker fuel.

"The wider premium recorded this week, could mean LSFO cargo swaps include a higher proportion of fuel oil shipments with a maximum 0.5% content, as market participants transitions to very low sulphur fuel in preparation for the International Maritime Organisation [sulfur] cap [on bunker fuel]," the agency said.

Typically, market observers have pencilled in the start of the fourth quarter for IMO2020 to start to exert changes on fuel oil market dynamics.

The widening gap between low sulfur and high sulfur swap values suggests an earlier start to that process.