Bunker Prices Unusually High Relative to Crude as HFO Discount to Brent Disappears

Monday December 10, 2018

Bunker prices are unusually high compared to crude, with the discount for HFO vs Brent at times having evaporated to zero in recent weeks.

As a result, key grade IFO380 in major ports Friday was $76/mt higher than expected based on historical relationship norms between Brent and bunkers.

Buyers can at least take heart in the fact that in dollar terms bunker prices have fallen substantially of late with IFO380 in the major bunkering ports down $90/mt over the last month.

This is as indicated by Ship & Bunker's average IFO380 price across the top 20 global bunkering ports, with the key grade priced at an average of $514.50/mt on October 10 and $424.50/mt on Friday.

While the relationship between Brent and bunkers naturally fluctuates, historical data from Ship & Bunker shows IFO380 is typically priced at a 25% discount to Brent.

In fact, looking at the Brent price and comparing it to Ship & Bunker's Global 20 Ports Average IFO380 price, the average discount for HFO over the six year period to the end of June 2018 was exactly 25%.

With Brent Friday at $61.67/bbl (or $464.38/mt converted at 7.53 bbl/mt) that expected 25% discount suggests bunkers should be $348.50/mt in the major bunkering ports, $76/mt lower than Friday's actual figure of $424.50/mt.

The average discount for IFO380 since then (from July 2, 2018 to December 7, 2018) has averaged just 15%, and on November 23, no doubt helped by a second 7% drop in oil prices leaving bunkers struggling to catch up, the discount for IFO380 was zero.

On Friday the discount for IFO380 in the major ports vs Brent was just 8.5%.

In comparison, distillate grades in recent weeks have followed a similar pattern on paper but the impact is comparatively less pronounced.

The average premium for MGO vs Brent in the six years to the end of June 2018 was 30%, and it has remained at 30% in the (July 2, 2018 to December 7, 2018) period since then.

Ship & Bunker's Global 20 Ports Average MGO price Friday was $635/mt, a premium vs Brent of 36.5%. This is only slightly higher than the projected price of $603.50/mt based on the typical 30% premium.