Q4 Fuel Transitions Ahead of IMO 2020 Regulations


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Commercial maritime vessels are shifting from consuming high-sulfur fuels to their low-sulfur future in the fourth quarter of 2019 leading up to the IMO 2020 sulfur regulations.

Demand for the portion of the refined barrel that constitutes low-sulfur and middle distillates is about to experience substantial demand growth. This can mean higher prices for other low-sulfur fuel consumers outside of the commercial maritime industry, particularly the trucking and rail industries.

The refining industry is transitioning operations to accommodate changing refined product needs for IMO 2020. Current inventories have begun to change, and a timeline for greater market demand for low-sulfur fuels– and therefore upside price risk – is emerging in Q4.

Low-Sulfur Bunker Supplies are Growing

Production and distribution of very-low-sulfur fuel oil (VLSFO) is hastening. Major bunkering hubs are already building stockpiles of this new, compliant fuel blend. A growing number of international ports are also announcing their intention to have fuel availability.

The Port of Singapore has nearly 8.5 million metric tons of low-sulfur products to accommodate shifting carrier demand, according to a recent S&P Global Platts report. Singapore accounts for one-fifth of the world’s annual bunkering demand at about 50-55 million metric tons. These totals suggest more than 15 percent of Singapore’s annual demand is accounted for in its reported low-sulfur fuel inventories.

Low-Sulfur Fuels Take Storage Capacity Away from High-Sulfur Fuel

Without an increase in bunkering capacity, a majority of high-sulfur fuel oil (HSFO) storage must give way to lower-sulfur fuels.

HSFO remains the most-consumed fuel in the market, yet inventories are taking a hit. Rotterdam, Europe’s largest bunkering hub and the world’s third-largest, has already seen substantial decreases to HSFO production and supply. Moreover, the blending of HSFO to create IMO compliant fuel has ramped up, leading to additional demand for the high-sulfur fuel. Prices of IFO 380 have reflected the tight market, and its discount to other low-sulfur marine fuels has recently shrunk.

Prices of IFO 380 have rapidly risen in Rotterdam due to tight supplies of high-sulfur fuel. The IFO 380 discount to LSMGO fell to as little as $151/mt following the recent Saudi Arabia oil infrastructure attacks. Its discount to VLSFO has been as low as $86/mt in September. For comparison, historic discounts for IFO 380 to LSMGO averaged $241/mt in the year prior to September, while the IFO 380 discount to VLSFO averaged $136/mt during July and August (see chart above).
Source: S&P Global Platts, Bunkerworld

Expect Price Impacts With an Accelerating Transition

Singapore and other major ports will continue to experience an accelerated transition because more suppliers are about to bring their fuel to the market. A July survey from Singapore showed 18 fuel suppliers intend to supply the port with VLSFO sometime during the fourth quarter of 2019.

While suppliers have already begun to provide the new, compliant fuel to the world’s largest bunkering hub, most of the committed suppliers will begin to offer VLSFO 0.5% during the fourth quarter of 2019. The numbers shown in the chart above reflect the list of licensed bunker suppliers who intend to supply compliant fuels at the Port of Singapore as of July, 2019. The demand shift will lead to elevated price risk for low-sulfur fuel beginning in the fourth quarter of 2019. The scope of this elevated price risk includes low-sulfur, middle distillate fuels, like over-the-road diesel.
Source: Maritime and Port Authority of Singapore


Carriers are likely not in a rush to pay higher prices for lower-sulfur fuels. As such, the second half of Q4 2019 will be far more active than the first half when it comes to shifting supply-demand fundamentals. This also likely means low-sulfur fuel prices will experience upward pressure from the shift in demand beginning in the second half of the fourth quarter.

Breakthrough has indicated upside price risk for low-sulfur fuels during the final quarter of 2019 and into the first quarters of 2020. This is likely due to the quick shift in demand toward low-sulfur fuels, and the fact that low-sulfur fuel stocks presently remain tight. For example, the U.S. inventory levels of low-sulfur distillates, including ultra-low-sulfur diesel, remain 5 percent below the five-year average for this time of year.

This price pressure includes low-sulfur fuels that will be directly consumed by the maritime industry, as well as low-sulfur fuels for inland transport.

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