Gibraltar HSFO Price Approaches Parity With VLSFO

by Jack Jordan, Managing Editor, Ship & Bunker
Tuesday September 19, 2023

Ships with scrubbers operating in the Western Mediterranean are seeing dramatically curtailed returns on their investments, with the HSFO price at Gibraltar approaching parity with VLSFO this week.

380 CST HSFO delivered at Gibraltar stood at $659.50/mt on Monday, according to Ship & Bunker pricing, just $7/mt less than VLSFO. The spread has narrowed from $68.50/mt a month ago and $235.50/mt.

Similar pricing can be seen in neighbouring Algeciras, but the narrowing of the scrubber spread has been much less pronounced elsewhere in the region. The VLSFO-HSFO spread stood at $105.50/mt at Piraeus on Monday, $133/mt at Istanbul, $109/mt at Genoa and $54/mt at Valletta.

The change at Gibraltar comes down to limited demand for HSFO and a narrow range of suppliers limiting their purchases of cargoes, local sources told Ship & Bunker on Tuesday.

"The answer is not much capacity and stock," one source said.

"Only Minerva, Peninsula and Cepsa have the product, and there's not much demand, so I assume they take advantage."

Gibraltar is the largest bunkering location in the Mediterranean, with about 4 million mt/year of sales volumes.

Another source also highlighted the limited competition in the area for HSFO supply.

"If you look at Gibraltar, Algeciras, Barcelona and Huelva, this is a very niche market." the source said.

"Who's the market-maker, the market-setter -- it's Peninsula.

"If you come with a big prompt HSFO inquiry in these places, you're going to pay through the nose for that product.

"Whereas if you plan and then compare three or four different ports, that changes things dramatically."

The price move in the Western Mediterranean is also a more exaggerated example of a global narrowing in the scrubber spread in recent months.

The price spread between Ship & Bunker's G20-VLSFO and G20-HSFO Indices, reflecting average prices across 20 top bunkering locations, hit a new record low of $64/mt on August 23. The spread stood at $84/mt on Monday, compared with $250.50/mt a year earlier.

That global narrowing of the price spread is in large part down to crude output cuts from Saudi Arabia and Russia in recent months. These crude exports have largely been replaced with crudes from elsewhere with a lower fuel oil yield when refined, keeping HSFO supply tight.

The scrubber spread is likely to remain narrow for the rest of the year because of the extension of these production cuts, Arne Lohmann Rasmussen, head of research at hedging firm GRM, recently argued.