Rising prices. File Image / Pixabay
A lack of barges to supply IMO2020 compliant VLSFO bunkers has been a major factor in prices for the new fuel being so high, says FIS Fuel Oil Derivatives broker Chris Hudson, but recent developments in China could help ease the bottlenecks.
The problem has been particularly acute in Singapore where, as Ship & Bunker previously reported, at one point last month VLSFO was actually priced at a premium to MGO.
Ship & Bunker data shows prices in Singapore have since fallen back slightly to a tiny discount for VLSFO vs MGO of $4/mt as at Friday, but as Hudson notes, it was thought at the very least MGO would act as a cap for the new fuels.
"As a cap then, it's been pretty useless, unless you use it to hide the egg on your face if you had predicted the effectiveness of the gasoil cap," he wrote in a note Friday.
Chris Hudson, Fuel Oil Derivatives broker, FIS
Chinese refiners have capacity to produce 18.5 million mt/year of VLSFO
"What is seemingly driving this huge premium for the new product is one major factor: that there simply aren't enough barges to cater for the bunkering demand required. This is the bottleneck that has pushed up prices and means that physical providers can charge what they want for a product that is so desperately needed."
Relief from China may come due to a tax rebate on fuel oil that is understood to have now been approved.
"Chinese refiners have capacity to produce 18.5 million mt/year of VLSFO but have not been able to compete in the international market due to government tax," Hudson writes.
"This rebate will not only bring more product into the market but will hopefully then start to bring down prices generally, especially in Asian shipping hubs."