Good Time to Hedge Bunker Fuel Costs in Run up to 2020, Says FIS

by Ship & Bunker News Team
Wednesday November 22, 2017

Price uncertainty created by the looming global 0.5% sulfur cap on bunker fuel could prove advantageous to bunker buyers willing to hedge their book, a hedging bunker broker has said.

That uncertainty, according to Freight Investment Services (FIS), can be seen in the forward curve on Rotterdam and Singapore barge contracts.

These contracts follow the fuel oil barge market where trades are bigger and more frequent than in the bunker market.

Looking not very far ahead, the front end of the forward curve is showing a $4 discount between high and low sulfur product in Singapore and Rotterdam. But move ahead by 20 months to Calendar 20 (Cal20) and the futures market shows a much bigger spread of over $70 between the two grades.

The Cal19 Rotterdam barges contract is pricing at around $300/ metric tonne (mt) and Cal20 at around $260/mt while the November spot price is hovering around $350/mt, according to the broker.

"We are already seeing a huge move in Cal19/20 high sulfur fuel oil (HSFO) spreads and the same in the low sulfur/HSFO spreads," said FIS Bunker Broker Luke Longhurst.

"Whether or not shipowners switch to low sulfur fuel oil after 2020 or continue to burn high sulfur product with a scrubber, they have an opportunity to cover a portion of their fuel costs in the next two years at prices that are lower than current spot rates."

Market uncertainty is focused on what bunker fuel will be available in 2020. Market observers are predicting a period of high price volatility as the market adjusts to the realities.

"There is a great deal of uncertainty around what happens after 2020 and this is partly because refiners are yet to make public a full specification for the kind of low sulfur fuel oil that will be available," said Longhurst.

"But owners can give themselves certainty about their fuel costs by taking advantage of falling prices to benefit until that date and even beyond," he added.

FIS says that using its services, fuel buyers can hedge their fuel costs in any quantity, from a mt upwards.