Euronav Sees US Refining Flexibility Behind Current HSFO Strength

by Jack Jordan, Managing Editor, Ship & Bunker
Tuesday June 16, 2020

Shipowners with scrubber-equipped tonnage currently bemoaning the narrow spreads between high sulfur fuel oil (HSFO) and very low sulfur fuel oil (VLSFO) can blame the US refining industry for their troubles, according to tanker company Euronav.

The spread was just $49.50/mt at Rotterdam on Monday, according to Ship & Bunker pricing, down from $298/mt at the end of 2019. The spread, sometimes referred to as the hi-5, is a key measurement on the savings to be made by using scrubbers and continuing to burn cheaper HSFO.

US Refiners Reshuffle the Deck

While bunker suppliers had expected there to be little demand for HSFO after IMO 2020, meaning ships with scrubbers could pick it up at heavy discounts, US refiners have bought large quantities of high-sulfur straight run fuel oil from Europe to run through their coking units, according to Rustin Edwards, head of fuel oil procurement at Euronav.

"All the refineries went big, from what I saw, for high-sulfur straight-run," Edwards said in a webinar hosted by price reporting agency S&P Global Platts Tuesday.

"It dramatically reshiffled the deck on high-sulfur."

Euronav had originally expected the spread to narrow significantly in 2021, Edwards said.

Changing Tradeflows

The Port of Rotterdam noted the trend earlier this year as it described a change in fuel oil tradeflows through its facilities to the rest of the world in the first quarter.

"There was a sharp fall in the trading of fuel oil between Russia and Singapore, for which Rotterdam has been the throughput location in recent years," the port authority said in April.

"Instead, much of the fuel oil went directly from Russia to the United States for refining."

The increased refining of high-sulfur straight-run product in the US will have tightened the spread at both ends, removing high-sulfur components from the supply chain and increasing output of middle distillates that can be used for VLSFO.

"We are seeing more and more distillate-rich blends showing up in the market," Edwards said.

About Jack Jordan

Jack Jordan

Jack Jordan is the Managing Editor of Ship & Bunker, the world’s most read marine fuel-focused publication.

He is an experienced financial editor and reporter with a first-class degree in Arabic and Russian, a postgraduate diploma in newspaper journalism and several years' history of covering the oil and shipping industries and capital markets.

Jack is based in London, UK.

About Ship & Bunker

Ship & Bunker is the world's most read publication focused on the marine fuel markets. Completely independent, it is the leading industry authority providing comprehensive daily news, exclusive in-depth features and analysis, along with daily & historical bunker price indications.

To contact the editor responsible for this story email us at editor@shipandbunker.com