Post-2020 Bunker Price Uncertainty Preys on Shipping Industry

Monday December 4, 2017

Shipowner uncertainty over the forward price of bunker fuel is running high.

Citing a range of shipping opinion, maritime news provider Lloyd's List reports that while hedging bunker fuel costs could be a strategy for shipowners, with the 2020 0.5% sulfur cap just around the corner, many market unknowns remain.

One of those unknowns is the extent of compliance with the 2020 sulfur cap. Strict enforcement would weaken HSFO demand and widen the spread between the price of HSFO and distillate grades. A softer approach could have the opposite effect.

One European shipowner told the news provider that while the bunker desk tried to hedge forward, it was not always possible.

A major charterer said that the Cal19 and Cal20 markets were very different with the International Maritime Organisation sulfur cap, and did not present an opportunity. Unless ships already had scrubbers installed, this could turn out to be a very bad bet for owners without full knowledge of compliance, the charterer was reported as saying.

Another area of uncertainty is supply as it unclear whether refiners will be in a position meet the expected increase in demand for distillate fuel from shipping in two years' time. That uncertainty adds to perceived difficulties in determining future pricing strategies.

However, bunker hedging outfit Freight Investment Services believes there are strategies to mitigate uncertainty and that hedging part of the cost of bunker fuel makes sense given price volatility.