The high sulfur fuel oil market in Europe remains fairly liquid with only two month to go until a lower sulfur cap on marine fuel comes into force on January 1 and removes, at a stroke, a large part of current demand for HSFO.
Early this year, liquidity in HSFO markets had been expected to fade at the start of the fourth quarter ahead of IMO 2020 — the International Maritime Organization decreed in October 2016 that the sulfur limit on marine fuels will fall to 0.5% in 2020, from 3.5%.
But there were a significant number of trades and indications for HSFO in the Platts Market on Close assessment process in October.
“If you want high sulfur, it is actually a bit difficult to find,” a trader said this week.
Over 620,000 mt of HSFO traded in the Platts MOC last month, compared with 546,000 mt in August and and 412,000 mt in September. Traded volumes in October 2018 totaled 362,000 mt.
Backwardation continued to hold at the prompt of the curve with market participants highlighting tight availability for HSFO barrels.
“There is going to be tightness even through to November,” a second trader said this week. “You have bits and pieces here and there, but you do not have the same [HSFO] flows as before.”
Peninsula and Trafigura both bid for mid-November cargoes in the Platts MOC for CIF Mediterranean HSFO cargoes this week.
Market players also pointed towards uncertainty amid price volatility in the 3.5% FOB Rotterdam barge market in recent weeks, though they expected that to subside in the first quarter of 2020.
Structure on the HSFO Rotterdam barge Platts forward curve moves into contango in January. That would typically enable market participants to take positions more easily, especially when considering storage economics, one source said.
In the paper market, the inter-month prompt time spread for 3.5% fuel oil barges has steep backwardation until January. After the Platts MOC Thursday, Platts assessed the October/November and November/December spreads at $12.00/mt and $16.75/mt, respectively. However, the December/January falls to minus $1.50/mt, with a continuing contango structure throughout 2020.
Going forward, HSFO will be in demand for power generation, from countries like Saudi Arabia, as well as from shipowners with scrubbers installed on their vessels. Meanwhile, refinery upgrades globally will lead to a reduction in HSFO production.
LSFO ON THE UP
Buying interest for 0.5% sulfur marine bunker fuel in Northwest Europe has grown in October, sources said, as market participants gear up to comply with the upcoming IMO 2020 mandate.
Some sources said demand for 0.5% marine fuel had been put on hold as shipowners looked to optimize their time burning HSFO on the high seas amid high freight rates and a wide spread between 3.5% and 0.5% FOB Rotterdam barges.
The 0.5% FOB Rotterdam barge market was assessed at $438.25/mt Thursday, a $201.50/mt premium to 3.5% FOB Rotterdam barges and a discount of $128.00/mt to ICE low sulfur gasoil futures.
Another recent development in the the HSFO market was Russian state-owned Rosneft’s tendering of its annual dirty oil product supply contracts for 2020 at the start of October, offering a significant increase on the maximum volume available from 2019.
The maximum quantity of fuel oil — RME 180 or RMG 380 — offered by the Russian group for 2020 is 21.800 million mt, around 1.900 million mt more than in 2019. Sources attributed the increase to a drop in bunker demand for HSFO ahead of IMO 2020.
Delivery options vary, with around 8 million mt available for Baltic Sea loading, 7.1 million mt available for Black Sea loading, and 6.7 million mt with either Black Sea or Baltic loading, all at the seller’s option.