OPEC+ Compliance May Deliver $500/MT VLSFO by End of 2021

Rising oil prices could trigger a rally for bunkers later this year. File Image / Pixabay

Full compliance by members of the oil producer coalition OPEC+ to its output cuts deal could see very low sulfur fuel oil (VLSFO) prices climb above $500/mt again by late 2021, according to bunker trading company Integr8 Fuels.

Full adherence to the OPEC+ cuts through to April 2022 could start to bring global oil supply beneath demand, triggering a rise in crude prices, the company said in an emailed research note Thursday.

A spectacular falling-out between Russia and Saudi Arabia over production cuts triggered the start of this year's crude collapse in March.

"The 'worst' is over and oil fundamentals are now tightening; demand is rebounding fast as countries come out of lockdowns, and production has fallen with the OPEC+ cuts along with losses in output from low oil prices (most notably in the US)," Integr8's analysts wrote in the note.

"Full adherence [to OPEC+ cuts] would appear to result in supply running considerably below demand for the rest of this year and throughout 2021.

"This would be highly price supportive and we could expect bunker prices on an upwards trajectory."

Steady Rise for Brent

Brent crude prices could be 'well above' $50/bl by the end of this year and up to around $60/bl 'later next year', the analysts said, compared with its current price in the low forties.

That could deliver a pronounced rise in bunkers over the next 18 months. 

"Full OPEC+ adherence does imply much stronger prices than the current crude forward curve indicates and would signal Singapore VLSFO knocking on the door of $400 at the end of this year and moving towards $500 in late 2021," Integr8 said.

VLSFO prices in Singapore have dropped over the past week, according to Ship & Bunker pricing, to $317.50/mt on Thursday from $329/mt a week earlier.

The record high for Singapore VLSFO was on January 6 at the height of the IMO 2020 supply crunch, at $741/mt.