A shortage of bunker fuel and barges in Singapore has sent delivered premiums for 380cst high-sulphur fuel oil (HSFO) to record highs.
The premium to 380cst cargo prices was assessed at $52.15/t yesterday, according to Argus data. The premium has held at around $30/t since the second week of July, but has risen sharply this week to hit $38.63/t on 26 August before reaching yesterday's all-time high.
This is the first time premiums have ever remained so high for so long, in a clear sign the market is struggling to adjust to the International Maritime Organisation (IMO) 2020 regulations that will cap marine fuel sulphur content at 0.5pc from 1 January next year.
"A severe shortage of cargo paired with a reduction of suppliers and barges is causing this extreme tightness", a Singapore based bunker trader.
Total fuel oil imports to Singapore in August are likely to be around 5.4mn t, almost unchanged from 5.31mn t in July, according to market estimates. But much of this is likely to be low-sulphur straight-run fuel oil, vacuum gasoil or other low-sulphur fuel oil (LSFO) components, rather than HSFO. Most of the arbitrage supplies are coming from the Middle East, where peak summer demand is now easing, while supplies from Europe are likely to be mostly LSFO feedstock.
Singapore is likely to receive only limited supplies of on-specification HSFO over the coming weeks, with a strong backwardation in fuel oil markets disincentivising storage of that product. The backwardation has widened sharply to $36/t from just $9/t on 14 August.
Market participants in Singapore and neighbouring ports are actively reducing stocks of HSFO so they can instead receive and store more LSFO, which will become the bunker fuel of choice when the IMO regulations take effect in just over four months' time.
Barge availability is also tightening, as operators clean more of their tanks so they can deliver LSFO. Some barges are also out of service to recalibrate their mass flow meters (MFMs). And two local companies — Southernpec and IPP — have had their bunker craft operator licenses revoked and suspended respectively by Singapore's Maritime and Port Authority in recent months because of suspected tampering with their MFMs.
"Both the majors and the independent suppliers are not expanding their barge fleet and are even reducing them in this dismal business environment", one trader said, referring to the slump in the HSFO market ahead of the IMO changes. Most majors have large volumes of LSFO available and are heard offering aggressively.
A fall in the number of tanks holding HSFO means loading slots at berths are also tight.
"Shipowners expected fuel oil prices to weaken as demand dropped off but they did not anticipate that supply would actually slow down faster than demand", one market participant said.
Severe shortages of HSFO have also hit most other ports in Asia-Pacific, especially in South Korea, Hong Kong and China, which are dependent on supplies from Singapore.