A report by S&P Global Platts based on bunker market participants’ views suggests that Asia’s 380 CST high sulphur fuel oil market, which was expected to wither after the IMO-driven transition to low sulphur marine fuel from 2020, has instead emerged as a niche market that enjoyed steady margins in 2020, with prices expected to be stable or firmer in 2021.
S&P Global Platts data showed that for 2020, the front-month spread between the Singapore 380 CST HSFO swap and the Dubai crude swap, also known as the crack spread, averaged at minus $4.74/b, compared to the minus $7.49/b average for 2019.
At the heart of the bullish sentiment are expectations of progressively rising demand led by an increase in the adoption rate of emission abatement technology, or scrubbers.
“Our estimates are that there are 3,850 scrubbers installed by end-2020, rising to 4,450 by end-2021,” said Alex Yap, senior oil analyst at Platts Analytics. “Typically, larger vessels are favoured for scrubber installation, but we see a slowdown from 2020, from about 1,400 scrubbers installed in 2020 to an estimated 600 to be installed in 2021.”
Estimates of a relatively slower scrubber adoption growth rate is attributed to a narrower-than-expected spread between low sulphur and high sulphur marine fuel, market sources said.
Even as the spread between Singapore marine fuel 0.5%S and 380 CST HSFO cargo averaged $97/mt in 2020, it has narrowed from $123.72/mt in the first half of the year to average $71.1/mt in the second half, Platts data showed.
Shipowners said that a low three-digit spread between IMO-compliant marine fuel and 380 CST HSFO was sufficient to recoup investments into scrubber installation within two years.
Singapore’s pre-eminent trading hub status with state-of-the-art infrastructure and vast storage capacities, coupled with it being the world’s largest ship refuelling destination is expected to bode well for the high sulphur bunker fuel market too.
As the cost economics to carry on maintaining storage and delivery infrastructure to meet a small volume of HSFO demand increasingly becomes unfeasible at all but the biggest bunkering hubs globally, relatively smaller bunkering hubs will continue to shift away from HSFO to focus on low sulphur marine fuel, sources said.
“Singapore has three things going for it: excellent bunkering infrastructure, tank storage and blending expertise. Given that most ports provide high sulphur bunkers at a higher cost than Singapore, shipowners are far more comfortable bunkering here,” a Singapore-based bunker trader said.
Demand for 380 CST high sulphur bunker from ships calling at the city-state has progressively increased in 2020. Monthly sales averaged 955,400 mt over July to November 2020, compared with 655,100 mt in H1 2020, latest data from the Maritime and Port Authority of Singapore showed.
On the supply side, traders have tied 2021 HSFO supply to refining margins for cleaner transportation fuels, with HSFO supply expected to be capped by lower middle distillates production, refining sources said. As such, prices are expected to stay steady, if not rise.
In the short term though, HSFO availability looks more assured, as more-than-expected volumes of straight-run fuel oil, with 3.7%-5% sulphur, is expected to be shipped East from the Middle East in Q1 2021.