Sales of September 380 CST LSFO Bunkers in Singapore Rise to Record High

October 13, 2020

Singapore sold a record volume of 380 CST low sulfur fuel oil (LSFO) bunkers in September, lifting its total marine fuel sales to a six-month high of 4.22 million mt in September, preliminary data from the Maritime Port Authority of Singapore (MPA) on Tuesday showed.

Total sales is 1.2% and 8.2% higher than a month and a year ago, respectively, in yet another sign that the industry has recovered from the COVID-19-triggered demand destruction. But sales of individual bunker grades continue to whipsaw as shipowners react to changing market conditions, suppliers said.

Sales of 380 CST LSFO rose to a record 2.29 million mt in September, edging past the previous high of 2.25 million mt reached last December. Sales of the high sulfur 380 CST grade, the second most popular bunker grade, however, fell for the first time in four months to 876,000 mt. The third most popular grade, LSFO 100 CST, dropped for the third consecutive month to 593,800 mt, the lowest so far this year.

Barging availability affected HSFO sales while a narrowing spread between LSFO and HSFO also encouraged demand for low sulfur bunkers, suppliers said. The spread was around $55-$65/mt in September compared to $65-$70/mt in August, they noted. The spread has since widened back to around $70-$75/mt in October, OPIS data showed.

Despite the recovery in bunker sales, the wider shipping industry remains mired in COVID-19 induced weakness, which traders see as a persistent dampener on market sentiment.

There were 3,455 vessels that bunkered in Singapore last month, 61 more than a year ago, the MPA data showed. But total vessel calls was just 11,561, 33% lower than a year ago. Travel restrictions have severely curtailed passenger ship traffic, bunkers suppliers said.

 

--Reporting by Hanwei Wu, Hanwei.Wu@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Falling Bunker Sales, Credit Squeeze Sparks Buyouts, Bankruptcies: Sources

October 5, 2020

A global decline in marine fuel sales is tightening cashflows for small to medium-sized trading firms and suppliers, pressuring their sources of credit, which is expected to result in closures, bankruptcies and acquisitions in the coming months, industry sources told OPIS.

The COVID-19 global pandemic has slowed industry output and reduced international trade flow, leading to marine fuel demand destruction sand a collapse in bunker prices, prompting traders to reduce their exposure and shore up financing for their operations.

Very low sulfur fuel oil (VLSFO) barges loading in Rotterdam have collapsed to $314.50/metric ton on October 1 compared to $587/mt on January 2, OPIS pricing data showed.

"Credit availability from banks and large physical suppliers such as oil majors is a problem, more so for mid-sized to small traders with little in the way of assets," said Jason Silber, managing director of SeaCred LLC, a global marine credit reporting agency based in New York. "Big banks that have been involved in commodity credit finance in general and bunkers in particular for years are pulling out of the business, following a procession of high-profile collapses."

Following the demand plunge and price crash in crude earlier this year, Singapore oil trading firm Hin Leong Trading (HLT) was placed under judicial management with liabilities totaling about $4.05 billion while its assets were valued at $714 million as of April 9, according to a debt moratorium court filing seen by OPIS. Hin Leong operates a bunkering unit, Ocean Bunkering Services, ranked among the top three bunker suppliers in Singapore in 2019.

Dubai-based trader and physical bunker supplier GP Global has undertaken financial restructuring after failing to obtain full support from lenders to fund its business, it said in a statement in July. However, GP Global has since said it is confident it will attract new investment to assist its current cashflow position.

"I expect small-to-medium-sized bunker supplies, with exposure to credit risk and lack of a diverse portfolio, would be pressured to restructure or [else] have difficulty finding credit," said Stephen Jew, associate consulting director downstream at IHS Markit.

Marine transportation services company KPI Bridge Oil acquired Glencore subsidiary OceanConnect Marine, an oil trading company, in July.

"Peninsula, Trafigura, Minerva and Vitol - they'll continue to have access to credit. It's mainly the small to mid-size bunker traders who are seeing their liquidity sources drying up," Silber added. "Expect closures, acquisitions and bankruptcies in coming months."

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com
--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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Peak Summer Middle East HSFO Demand Propels Spot Online Trading in Singapore

July 20, 2020

A surge in high sulfur fuel oil (HSFO) demand for seasonal summer power generation in the Middle East may have led to a seven-fold increase in online transactions of mostly 380 CST HSFO in Singapore, said market participants.

Around 840,000 mt HSFO cargoes changed hands from July 1-17, a massive jump from the 110,000 mt traded in June, according to trades on the online platform compiled by OPIS, a unit of IHS Markit.

The trades are on track to match or even surpass the 1.12 million mt transacted a year ago in July 2019 before the coronavirus disease 2019 (COVID-19) pandemic.

Trafigura was the most prominent buyer in July, snapping up to 820,000 mt during the afternoon online trading in Singapore. The trader chartered the Navig8 Promise to move 80,000 mt of HSFO from Singapore to the Red Sea and Suez ports, loading on July 21.

Trafigura also placed two other Aframax tankers, the Zuma and the Breviken on subjects to move a total of 160,000 mt of HSFO on the same route, according to shipbrokers.

"The recent high trade volumes have also coincided with the peak summer HSFO demand in the Middle East Gulf for power generation," said Daryl Tan, a consultant at FGE.

Tan also noted recent imports of HSFO into Pakistan recently, which was driven by fuel shortages for power generation that led to more frequent load shedding in the commercial capital, Karachi.

Demand for HSFO as a marine fuel is lackluster and is instead being utilized as coke feedstocks, said another market source. Several shipping fixtures showed straight-run fuel oil (SRFO) shipments to East Asian refineries.

Aramco Trading chartered the Blue Power to move 80,000 mt of SRFO from Pengerang, Malaysia to South Korea, loading on July 23-25, according to shipping sources. Chevron placed a Sovcomflot-owned tanker on subjects to ship a similar cargo from Singapore to Thailand, loading July 24-27, they added.

Free-on-board 380 CST HSFO in Singapore at $247.04/mt on July 17, according to OPIS. HSFO refining margins to Brent crude were steady at a discount of $4.78/bbl on July 17, but firmer from the start of the summer season on June 22, when it was at a discount of around $6.90/bbl, said traders.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Formosa Petrochemical to Halt VLSFO Exports in July, August on Poor Margins

July 13, 2020

Declining very low sulfur fuel oil (VLSFO) refining margins have prompted some north Asian refiners to halt or reduce VLSFO exports this two months, according to traders.

Formosa Petrochemical Corp. (FPCC) will skip shipments in July and August because of low margin, its spokesperson said. The Taiwan-based refiner will instead use its fuel oil residues as feedstock for its two 84,000 b/d residue fluid catalytic crackers (RFCC), he added.

FPCC will also consider putting its fuel oil residues into storage tanks rather than selling it, he said.

FPCC typically offers 105,000 mt per month via tenders. They last exported 37,000 mt of 0.5% sulfur 180 CST VLSFO possibly to Gunvor at around $10/mt discount to Singapore 0.5% marine fuel prices, loading from Mailiao on June 2-4, market sources said.

VLSFO cracks, or margins, Brent crude fell to $4.20/bbl on July 9, down from $7.98/bbl on April 1 and $28.77/bbl on Jan. 2, respectively, based on data from OPIS, a unit of IHS Markit

Residual fuel inventory in Singapore remain high at 26.67 million bbls for the week ended July 8, latest Enterprise Singapore data show. The stock level is close to a 4-year high at 26.74 million bbls on Aug. 10, 2016.

Most of the residual fuels recorded are VLSFO, according to market participants.

Singapore imported 54,715 mt of fuel oil from China based on the data as lackluster demand in marine fuels led Chinese refiners to turn to Singapore, they said.

Taiwan's state-owned refiner, CPC Corp. will only supply VLSFO to the domestic market and is unlikely to export in July, said sources who regularly buy from CPC. But nothing was firm yet for August, one source said.

CPC last sold 40,000 mt of 0.45% sulfur 40 CST VLSFO via a tender at around a $12-14/mt discount to the Singapore price, said one trader. The cargo was loaded from Kaohsiung at the end of June.

Apart from Taiwanese refiners, South Korea's usual exporters, SK Energy and Hyundai Oilbank (HOB) also reduced their VLSFO production and possibly suspended exports in July and August, several traders revealed.

SK Energy currently produces around 200,000 mt of VLSFO per month out of a maximum 400,000 mt from its two 40,000 b/d vacuum residue desulfurization (VRDS) units, while HOB reduced its VLSFO output to around 100,000 mt per month from 300,000 mt, which is mostly used to meet domestic demand, several buyers said.

Another refiner, S-Oil operates three hydro desulfurization units with a maximum capacity of 172,000 b/d. S-Oil usually sells low sulfur slurry and is also unlikely to export any VLSFO or slurry in July and August, said market participants.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Consortium Looks to Trade Physical Marine Fuel Contracts on Bloc-X Platform

July 9, 2020

Bloc-X, a new electronic trading platform for over the counter block futures transactions, may soon be offering fixed price physical marine fuels contracts alongside its oil and freight swap prices, company founder Andrew Toumazi told OPIS Thursday.

A number of market participants, including a large dry bulk shipowner, are considering using Bloc-X to start trading fixed price high sulfur fuel oil, very low sulfur fuel oil and marine gasoil contracts, according to Toumazi.

"It was not our original thinking [to offer physical oil contracts], but we have been approached by a consortium, and if there is demand, then why not," said Toumazi, a former fuel oil trader for Japanese trading house Mitsui.

Bloc-X has adopted a similar model to other electronic trading platforms used in the power, gas and coal markets, such as Trayport. Traders have access to Bloc-X where they can see the various competing bids and offers in over the counter swaps, while brokers feed through bids and offers through a web-based portal called Cobra-X. There is no co-brokering of deals, where intermediaries agree to split the commission on transactions when they are on either side of the deal.

"There can be no automated matching on screen, otherwise you are in effect an exchange, and so there is broker involvement in every deal," said Toumazi.

"Think of us like the pipes and plumbing," he added. "We facilitate trading between two counterparties, providing the venue to showcase bids and offers and to clear [swaps] through exchanges."

Bloc-Z started last year, signing up several ship owners and oil trading companies, as well as Amerex Singapore. The first foray was in the Asian distillate market, and after that initial proof of concept phase, the company launched around 200 oil swap contracts in oil and freight forward agreements in April this year.

 

--Reporting by Paddy Gourlay, pgourlay@opisnet.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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Hawaiian Electric Seeks Changes to Fuel Oil Contracts

June 16, 2020

Hawaii's largest electric utility and the state's only refinery are looking to alter an agreement that the two have regarding purchases of low-sulfur fuel oil in the wake of the coronavirus disease 2019 (COVID-19) and demand downturn.

According to recent regulatory filings, Hawaiian Electric on June 9 asked state regulators to approve an amendment for a contract with Par Pacific's Par Hawaii Refining tied to low-sulfur fuel oil (LSFO) that the utility uses for electricity generation in the Hawaiian islands.

The move follows the shutdown of a Par crude unit in Hawaii due to the drop in petroleum product demand caused by COVID-19.

The amendment, if approved by the Hawaii Public Utilities Commission, would allow Hawaiian Electric to purchase LSFO in a two-tiered structure based on volume, according to a June 9 filing Hawaiian Electric made with the U.S. Securities and Exchange Commission.

LSFO purchases made within the first tier would be made exclusively with Par at established pricing levels for a set volume, the filing said. If purchases exceed the established volume levels set in tier 1, tier 2 purchases would allow the Hawaiian utility to continue to buy LSFO from Par at established pricing levels or proceed to the open market.

"The tiered structure enables the utilities to source tier-2 volumes from other suppliers, which provides the utilities potential cost savings and opportunities to test the market and work with alternative suppliers," according to the filing.

In its filing to the Hawaii PUC seeking the proposed changes, Hawaiian Electric noted recent events caused by COVID-19 and their importance on LSFO output at the Par Hawaii refinery.

Without the Par Hawaii refinery, "Par cannot sustainably locally produce the full volume of LSFO required by ... [Hawaiian Electric] and will have to import barrels of LSFO to meet demand," the filing said.

In a May conference call discussing first-quarter results, Par said it had "reduced gasoline yields and increased fuel oil yield to match as close as possible the current demand profile in Hawaii, including utility fuels for power generation."

Par finances its Hawaii refineries inventories through a supply and offtake agreement with Goldman Sachs' commodity trading arm, J. Aron & Co., which Par outlined in its 2019 annual report.

Under the agreement, J. Aron holds title to all crude oil and refined products in storage tanks at the Hawaii refinery. Then, Par purchases crude from J. Aron on a daily basis at market prices and then sells refined products back to J. Aron as they are produced and put back into tanks. Par then purchases the refined products form J. Aron prior to selling them to third parties.

Hawaiian Electric noted in its PUC filing that it had issued a request for proposals on June 5 to test the waters for potential LSFO supply.  The companies have asked the Hawaii PUC to approve the amended contract by Aug. 4 to cover LSFO purchases starting Aug. 15.

 

--Reporting by Eric Wieser, eric.wieser@ihsmarkit.com;

--Editing by Thomas Sosnowski, thomas.sosnowski@ihsmarkit.com

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Panama Bunker Sales Ease in May, LSGMO Sales on the Rise

June 16, 2020

Bunker sales at the Panama Canal eased in May as shipping routes and markets felt the brunt of the coronavirus disease 2019 (COVID-19).

Total bunker sales at the Panama Canal were 393,316 mt in May, down 5.14% compared with May 2019 and down 5.26% compared with April 2020, according to data from the Panama Maritime Authority.

Despite the dip in May, overall total sales so far this year were running 4.77% higher than last year, coming in at about 2.177 million mt.

Low-sulfur marine gasoil (LSMGO) sales shot up in May to see total sales at 34,274 mt, up 538% compared with May last year and up about 350% compared with April 2020.

The LSMGO uptick came at the expense of marine gasoil (MGO), which saw total sales come in at 13,586 mt, which was a year-on-year drop of 61.2% and month-to-month plunge of about 71%. The Atlantic Sector reported no sales of MGO during May 2020.

Total sales of very-low-sulfur fuel oil came in at 312,038 mt, which was down 5.29% compared with April. VLSFO continued to make up the bulk of bunker purchases made at the Panama Canal, representing about 79% of the all sales during May.

Sales of fuel oil on the Atlantic Ocean side of the Canal continued to retreat and saw the lowest level in five years.

Total sales on the Atlantic Ocean side came in at 54,731 mt, down 22.29% compared with May 2019 and down 29% compared with April 2020. The last time Atlantic Ocean side sales dropped this low was in April 2015 when sales came in at 54,825 mt.

Total sales on the Pacific Ocean sector came in at 338,585 mt, down 1.63% compared with May 2019 and down 3.34% from April.

Total barges operating in the region numbered 37 during May, the highest on record.

Panama bunker prices firmed during May as crude oil prices started to crawl out of the rut hit it in April.

Panama VLSFO was assessed around $219 per metric ton ex-wharf at the start of May and moved to about $268/mtw by mid-month. Panama VLSFO was valued around $263/mtw at the end of the month and was now valued around $303.50/mtw in mid-June.

Panama LSMGO started May valued around $245/mtw, climbed to $305/mtw in mid-May, and then to about $320/mtw by end of May. Panama LSMGO was now valued around $355/mtw, a level not seen since mid-March.

 

--Reporting by Eric Wieser, eric.wieser@ihsmarkit.com;

--Editing by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com

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Singapore May Bunker Fuels Sales Dip as Opportunistic Buys Lend Support

June 16, 2020

Marine fuels sale in Singapore, the world's largest bunkering port, largely held its own in May on the back of opportunistic purchases even as the coronavirus disease 2019 (COVID-19) wreaked havoc on global shipping.

Sales of all bunker fuels in May dipped by a modest 2% to 3.925 million mt from 4.007 million mt a year ago and was down 4.6% from 4.114 million mt in April, according to preliminary data from the Maritime Port Authority of Singapore (MPA).

"There appears to be some re-stocking by shippers when the price of oil fell last month," said Mathew Chew, IHS Markit downstream principal analyst in Singapore.

In the first half of May front-month ICE Brent crude futures was trading at around the $30/bbl mark before rising to the $35/bbl level before prices took off to above $40/bbl in early June on news of a possible OPEC+ agreement to extend output cuts.

The sales volume shows that the industry has adjusted to the new IMO regulations that implemented a 0.5% sulfur cap on vessels without scrubbers from January 1, 2020, which initially triggered a record January pent-up sales of 4.51 million mt, analysts said.

Low sulfur fuel oil (LSFO) with a maximum sulfur content of 0.5% is now firmly established as the bunker of choice among shippers post-IMO 2020.

LSFO sales totaled 2.656 million mt in May, down from 2.85 million mt in April with the 380 CST grade being the preferred choice at 1.989 million mt, the MPA data showed.

Of the other grades of LSFO sold, 657,200 mt were 100 CST and 76,600 mt were 180 CST, according to the data.

Sales of high sulfur marine fuel oil (MFO) were slightly higher at 785,300 mt in May from 771,200 mt in April, of which 685,200 mt were 380 CST and 100,100 mt were 500 CST.

Under the IMO 2020 regulations, only vessels installed with scrubbers are allowed to burn 3.5% sulfur MFO. IHS Markit estimates that around 3,897 ships out of an approximate global fleet of 96,000 will be fitted with scrubbers by Jan 1, 2021.

 

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

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IBIA To Develop Global Bunker Fuels Licensing System

June 2, 2020

The International Bunker Industry Association (IBIA) will try and persuade the world's largest bunkering port authorities to introduce a licensing system to counter concerns caused by differing bunker fuel specifications, chairman Henrik Zederkof said Tuesday.

A wide range of very low sulfur fuel oil (VLSFO) blends currently trade in the marketplace, and concerns related to bunker fuel specifications have also been prompted by several incidences in ports around the world involving vessels with off-specification sediment levels of VLSFO. Defective fuels with high sediments can result in excessive sludge deposition in tanks, leading to engine and turbocharger damage.

"Our next step will be to set out a plan (to decide) which bunkering areas would make the most sense to approach, and how to approach the relevant authorities in these ports," IBIA's Zederkof told OPIS Tuesday.

"If we could gather 10-12 bunkering hubs under a licensing scheme, it would cover a huge share of global bunker supply. We can't put an exact number on it, but buyers should gravitate towards ports where they feel assured about the quality of service," Zederkof said.

International Maritime Organization (IMO) regulations introduced in January this year require ships to use VLSFO, which has a maximum 0.5% sulfur content, unless vessels have scrubbing technology onboard that enables the ship to remove emissions while burning high sulfur fuel oil (HSFO).

A licensing system for bunker suppliers in the Amsterdam-Rotterdam-Antwerp (ARA) region was scheduled to start this year but has been delayed due to the coronavirus pandemic, said Zederkof.

"Challenges presented by the coronavirus pandemic has taken precedence across the world, but we hope that by the end of 2020, we will at least have been able to start the dialogue and get the ball rolling," Zederkof added.

"Depending on our success in persuading authorities of the merits in having a bunker licensing system, we hope to see schedules for implementing them during 2021. Then it would depend on how quickly the respective parties are able to establish them, which could vary from a few months to a year or more," Zederkof concluded.

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Anthony Lane, alane@opisnet.com

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Pressured Singapore Bunker Suppliers Offload VLSFO, Premiums Collapse

May 22, 2020

Marine fuel suppliers in Singapore, the world's busiest bunker port, aggressively sold off their wares as the premium for IMO-compliant very low sulfur fuel oil (VLSFO) fell sharply amid weaker demand, more costly gasoil and reduced onshore storage space, said bunker traders.

Premiums for delivered VLSFO in Singapore slipped to $13/mt on May 21 from $28/mt at the end of March, according to data from OPIS, a unit of IHS Markit.

Bunker suppliers in Singapore were offering delivered IMO-compliant VLSFO at close to bulk free-on-board (FOB) prices, marine fuel buyers said.

"Yesterday, I saw offers at $270-$276/mt from a few suppliers, a slight premium to OPIS bulk assessment of $263/mt but they require a minimum bunker stem of 700-800 mt and for delivery from now to end-May," said a European shipowner.

Demand for bunker fuels over the past few days was very bad and as a result premiums were slashed to allow for the destocking of inventory, according to industry veteran Simon Neo of marine fuels consultancy firm, SDE International.

One seller said that he sold 20,000 mt of VLSFO for spot delivery at around $275-$276/mt on May 21, which he considered a lot given that major suppliers each sold around 350,000 mt of VLSFO in April.

A narrowing of the 10 ppm gasoil contango could have contributed to bunker suppliers offloading their VLSFO inventory, traders said. The Singapore 10 ppm sulfur is the typical hedge tool for suppliers.

As the gasoil price structure narrowed, there was less incentive to commit to large purchases, which brought renewed pressure to clear the VLSFO cargoes, they added.

Bunker suppliers also suffered a double whammy of the widening 5GO, an acronym for the VLSFO-10 ppm gasoil spread, which also disincentivized suppliers from holding stocks, traders said.

The Singapore 5GO widened to minus $40/mt on May 21 from minus $22/mt on May 4, according OPIS assessments, which also reflected the weaker VLSFO demand relative to 10 ppm gasoil.

There are many gasoil cargoes going into the light cycle oil (LCO) pool as LCO is commanding prices of around $15-$20/bbl premium to 10 ppm gasoil, said a Chinese buyer of the blendstock.

"Gasoil demand in South Korea, one of Singapore's main exporter, is recovering amid refinery run cuts there, hence there should be less gasoil exports to Singapore, which drove up prompt month prices," said Matthew Chew, principal oil analyst at IHS Markit in Singapore.

Another issue that bunker suppliers are facing is limited onshore tanks to store their low sulfur component and VLSFO.

"There is no point to store given the lack of onshore storage tankers," said one bunker supplier. Onshore residual fuels inventory in Singapore jumped to over a one-year high of 26.172 million bbls for the week ended May 20, according to the latest data from Enterprise Singapore.

This translates to around 76% occupancy rate of Singapore's total onshore dirty petroleum product tank storage, which IHS Markit estimates at 5.5 million cubic meters or about 35 million bbls.

Sales of marine fuels in Singapore, the world's largest bunkering port, rose by a surprising 11% to 4.11 million mt in April from 3.71 million mt a year ago, data from the Maritime Port Authority of Singapore (MPA) showed.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Hapag-Lloyd Set to Deploy World's First VLSFO, LNG-Fueled Container Ship

May 20, 2020

German shipping company Hapag-Lloyd will deploy the world's first dual-fuel vessel by the year-end, retrofitted to use very low sulfur fuel oil (VLSFO) and LNG, a spokesperson at the company told OPIS Wednesday.

The 2014-built Sajir, a container ship, is one of the 17 LNG-ready vessels operated by Hapag-Lloyd. Its container fleet consists of 248 ships. Converting the ship to burn LNG fuel will cost approximately $30 million, Hapag-Lloyd said.

The use of LNG in the shipping industry could potentially reduce emissions of carbon dioxide by 15% to 30%, and sulfur dioxide by more than 90%, the company said. Some 90% of Hapag-Lloyd's fleet burns VLSFO fuel and the remaining 10% has had scrubbers installed to enable the use of high sulfur fuel oil (HSFO), said the spokesperson. The shipping company currently has four vessels in operation that use scrubbers, with plans to retrofit another six by the end of the year.

"There has been a big push into LNG as a marine fuel," said IHS Markit research and analysis associate Andres Rojas. "This is a segment of the LNG space that's starting to attract a lot of interest, it's still in its infancy, but the number of LNG bunker vessels continues to grow. Currently, there are 12 LNG bunkering vessels operating globally, with another 13 on the orderbook."

A change in legislation from the International Maritime Organization from the start of the year mandates ships to use fuel with 0.5% sulfur content globally, compared with up to 3.5% sulfur previously. Shipowners can also meet the regulations by using scrubbers or equipping their vessels to burn cleaner alternative fuels, such as LNG.

Hapag-Lloyd reported a 58 million euro ($63.2 million) decline in the value of its bunker fuel inventory in its first quarter financial results statement on May 15, which is said was due to the collapse in oil prices.

VLSFO FOB Rotterdam spot barge prices were assessed at $233/metric ton on May 19, down from $559.25/ton on January 2, OPIS Europe marine fuel pricing data show.

IHS Markit analysts expect LNG demand growth to contract by 11% year on year in 2020, due to the recession, the shuttering of businesses and rising pipeline import volumes.

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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Stone Oil to Begin IFO Delivery Offshore Texas in Late Q2

May 7, 2020

John W. Stone Oil will commence IFO bunkering offshore Texas toward the end of Q2 2020 delivering 0.1%S and 0.5%S, the company's chief operation officer, Tony Odak, told OPIS on Thursday.

"This will be strictly offshore at Jones Act anchorages as well as non-Jones Act lightering and GOLA 1 and 2 in the Gulf of Mexico," Odak said.Odak said other offshore business could also be realized, such as Southwest Pass, and has a business model for additional offshore bunkering opportunities.

The articulated tug "Gulf Venture" will be the vessel for the new offshore IFO business. The 80,000-bbl vessel is currently undergoing modification and will carry multiple products as well as have segregated pumping, piping and product heating redundancies. Besides IFO, Stone will be supplying lubricants, urea, and caustic.

Stone current supplies marine diesel offshore on from its tug/supply ship "Great Expectations" to entities such as drill ships.

 

--Reporting by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com;

--Editing by Eric Wieser, eric.wieser@ihsmarkit.com

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Phillips 66 Testing Houston, NOLA Bunker Markets

May 6, 2020

Phillips 66 has recently commenced bunkering operations in the Gulf Coast after leaving the region as a supplier several years ago, bunker sources told OPIS Wednesday.

"They just started in Houston, a couple of weeks at most, and I've heard they are entering New Orleans," one large international bunker broker said. "They haven't been in New Orleans in 20 years. I believe they are testing the waters to see how it goes, they certainly have the oil."

Philips 66 did not return several calls and electronic communication for comment.

The broker explained that P66 had reconfigured its 265,000-b/d Sweeny refinery, located about 65 miles southwest Houston, such that it is producing straight-run fuel oil for the very-low-sulfur fuel oil marine market.

"It's very good stuff," the broker added. "It's a true marine spec fuel, although price may be an issue because its such good quality. They're not quoting everyone; they are being selective with larger traders."

A Houston-based bunker supplier who confirmed the P66 actions added that barging is being conducted by Baltimore-based Van Brothers.

 

--Reporting by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com;

--Editing by Eric Wieser, eric.wieser@ihsmarkit.com

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INTERVIEW: High Freight, Low Fuel Costs Are Just Short-Term, Says Furetank

April 30, 2020

While recent gains in spot freight has boosted shipowner revenue, port delays, crewing issues, potential changes to cargo flows and a global economic slowdown threaten the longer-term future of the shipping industry, Furetank managing director Lars Hoglund told OPIS this week.

"In the short term you can say it is a good time [to be a ship owner], but also if these is no demand, no consumption, then there will be the end of this and we are afraid when this will come," Hoglund told OPIS in an interview.

Global ship rates have skyrocketed since March, driven by a demand for vessels to store product, tightening the global fleet of available tankers, as the coronavirus disease 2019 (COVID-19) pandemic continues to restrict global trade and population movement.

Oil tanker time charter earnings based on a 30,000 metric ton refined product cargo shipped across Europe from the Baltic region - where the Furetank operates - climbed above $72,000/day this week, the highest since records began in July 2018, according to data from Baltic Exchange.

"The current rates are based on market fundamentals that won't last for the rest of this year," said Fotios Katsoulas, a shipping analyst at IHS Markit Maritime and Trade. "Additionally, we need to remember that operating expenses have been increasing sharply for ship owners. Ship owners have been affected by delays and congestion in Northwest Europe as our data in Commodities at Sea shows," Katsoulas added.

"The [continental European] market is very, very quiet, the cargo flow is reduced seriously," a regional shipbroker told OPIS today. "Charterers and traders are holding positions, as there is no more value apparently in moving product [in current market] conditions. Owners are starting to get seriously afraid that this is the end of the party and shortly will probably start to panic. We do expect a serious big drop on the rates."

Furetank Eyes LNG as a Future Solution

The family-run, privately-held Swedish shipping company, is also committed to using LNG as bunker fuel, as it is currently ramping up demand for fuel in busy times for business. Out of 20 ships operated by the company, seven use LNG for bunker fuels, while the rest are powered by marine gasoil.

Market observers note that with the collapse of fuel prices, business plans for many ship owners are being challenged due to payoff times, but Furetank says it remains committed to using LNG as it is more economical in the Baltic and North Emission Control Areas (ECAs), where it operates mainly smaller coaster-size oil tankers, with a deadweight capacity of 13,000-37,000 tons. It has not yet chartered any vessels for floating storage.

Ex-refinery marine gasoil prices in the Amsterdam-Rotterdam-Antwerp hub have tumbled to less than $200/ton from almost $600/ton at the start of this year, according to OPIS Global Marine data.

"With the oversupply [of oil], some refineries might need to close, which is what happened after 2008/2009. Then the transportation chain will change [but] we don't know how," said Hoglund. "Now when the fuel prices are low and the rates are high, we have increased the speed [of our ships], so we increased our consumption. But even with the LNG-gasoil spread narrowing, it is still cheaper to buy LNG."

His views echo those of some market observers that the COVID-19 pandemic will prompt more environmental discussions. Furetank is one of the Scandinavian companies keen on the uptake of LNG bunkering as a solution for low-sulfur emitting fuel, although it still faces criticism over the level of methane emissions arising from use of the fuel.

"I believe after this crisis, the politicians will demand us to be cleaner, and I think we will be even harder restrictions [for bunker fuels we use]," said Hoglund.

--Reporting by Paulina Lichwa-Garcia, paulina.lichwa-garcia@ihsmarkit.com;

--editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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Payback Time for Scrubbers Widening Amid Oil Price Crash

April 15, 2020

The payback time for adding scrubbing technology to a very large crude carrier (VLCC) will widen to around two years with a spread between high-sulfur fuel oil (HSFO) and very-low-sulfur fuel oil (VLSFO) of around $70/metric ton, according to IHS Markit analysis.

Ship owners rushed to take advantage of new sulfur fuel regulations from the International Maritime Organization at the start of this year.

Ships would have to burn 5,000-ppm bunker fuel, knows as VLSFO, unless they had installing exhaust gas cleaning systems, known as scrubbers, installed to remove the pollution, allowing them to keep burning 35,000-ppm sulfur HSFO.

"Payback times are highly dependent on price spreads but also on vessel size, route, fuel economy and of course the price paid for the scrubber system and its installation," said Hedi Grati, refining and marketing consulting director at IHS Markit, the parent company of OPIS.

"The largest crude tankers, bulkers and container ships have a payback of around 2 years, which would still be deemed acceptable. However, across the vessel categories, smaller ships all have paybacks well in excess of 3 years, sometimes towards the 6-7 years mark. That is going to be deemed unacceptably long, so will swing some future retrofit investment decisions for smaller vessels," he added.

At the start of the year, the spread between HSFO and VLSFO barges in Rotterdam was $314/mt, OPIS data shows.

This spread shrank to $73/mt on April 9 for barges loading in Rotterdam, which itself was down from $103/mt on March 9.

Demand for scrubbers, which can cost between $1.5 million and $3 million to install, has slowed, sources told OPIS.

The price spread between the two fuels has fallen as oil prices plummeted amid the price war between Russia and Saudi Arabia and the global reduction in oil demand due to efforts to contain the coronavirus disease 2019 (COVD-19).

The payback time for adding scrubbing technology to a very large crude carrier (VLCC) will widen to around three years with a spread between HSFO and VLSFO of $50/metric ton, Grati said.

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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US Gulf Coast Residual Fuel Arbitrage Open to Singapore

April 14, 2020

The arbitrage to Asia is open for VLSFO, providing a badly needed source of demand in the USGC residual fuel bunker market.

Local bunker demand is nil.

The US Energy Information Administration stocks released Wednesday (for the week of April 2) are revealing.

Consider that in a week when the PADD 3 refinery runs fell 1.7% to 81.9% (last year at the same time, 90.3%), stocks of USGC residual fuel built 1.7 million barrels to 21.2 million (last year, 16.1 million).

Exports have been hit as well. The EIA exports of residual fuel for the most recent week were 83,000 b/d, down from 96,000 b/d the previous week and down from 239,000 b/d for the same week last year.

Singapore June VLSFO swaps Wednesday were assessed Wednesday in the OPIS Global Marine Fuels Report at $271.45 or $40.50/bbl based on an 18 API conversion.

The June swap is an appropriate marker in that it is about a six-week voyage from Houston to Singapore.

Market sources put the cost of freight at the equivalent of $4.50/bbl.

Houston bulk VLSFO Wednesday was assessed at $34.31/bb ($229.95/mt), or $6.19/bbl below Singapore.

The cargo owner can sell a swap in June (likely against the entire volume) and lock in a profit on the USGC material. When the cargo leaves on the six-week journey, the owner's task will be to manage the hedge.

If the swap falls the seller will make more profit on the hedge; if the swap goes up it implies the physical value of the oil has gone up.

The trick is to sell the physical cargo; typically the seller would wait until it is 10 days out from its destination before selling physical oil. But it is also possible to sell part and wait to sell the rest piecemeal rather than sell larger  volumes.

 

--Reporting by Robert Sharp, robert.sharp@ihsmarkit.com, and Tom Sosnowski, thomas.sosnowski@ihsmarkit.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

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Singapore March Bunker Fuel Sales Rebound From February Decline

April 13, 2020

Sales of bunker fuels in Singapore for the month of March bounced back 11% to 4.3223 million mt following a drop of 14% to 3.8797 million mt in February, according to the latest report from the Maritime Port of Authority of Singapore (MPA).

"March is a longer month and we see a resumption of shipping activities from China that boosted the sales of marine fuels," a bunker supplier said.

A private gauge of China's manufacturing activity in March rebounded from a record low in the previous month, in line with official data suggesting early signs of economic recovery amid the coronavirus pandemic.

The Caixin China manufacturing purchasing managers index, which is tilted toward small, private manufacturers, rose to 50.1 in March from 40.3 in February, Caixin Media Co. and IHS Markit said. The March result is just above the 50 mark, which separates contraction from expansion.

Sales of low sulfur fuel oil (LSFO), with a maximum sulfur content of 0.5%, for marine fuels climbed to 2.9091 million mt from 2.7119 million mt in February.

LSFO remains the clear preferred choice among shipowners at the world's largest bunker port.

The most preferred grade of 0.5% LSFO was 380 CST, where sales totaled to 1.9824 million mt for March from 1.845 million mt in February.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Egyptian General Petroleum Sells Gasoil in April

April 6, 2020

Egyptian General Petroleum Corp. (EGPC) has issued a tender to sell around 25,000 metric tons of marine gasoil, tender documents seen by OPIS show.

EGPC is offering one cargo of 24,300 to 29,700 mt of 0.1% sulfur marine gasoil.

Under the terms of the tender, the product will be delivered FOB Alexandria ports during April 20-22. Bids should be submitted by April 7.

Last month, Vitol was reportedly awarded a 0.1% gasoil tender to supply EGPC with some 30,000 mt for March 20-22 delivery, OPIS market sources said, but Vitol was unavailable for comment.

While coronavirus disease 2019 (COVID-19) has rendered jet demand practically non-existent, the impact on gasoil has been slower to develop.

Refining margins, or "cracks," for northwest European (NWE) diesel and gasoil barges versus Brent futures have been relatively robust compared to jet recently.

But on Friday, the refining margin for NWE gasoil 0.1% barges collapsed to $4.42/bbl, almost a two-year low, compared to $12.25/bbl a week earlier.

Meanwhile, the NWE jet barge crack ventured into negative territory over two weeks ago. On Friday, the refining margin for jet barges dipped below minus $5/bbl, OPIS data show.

 

--Reporting by Jen Caddick, jenny.caddick@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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Marine Fuel Price Drop Extends Scrubber Payback Time

April 3, 2020

Expectations of a quick return on scrubbing technology has been dashed by the collapse in bunker fuel prices, analysts point out.

Demand for installing exhaust gas cleaning systems, known as scrubbers, which allows ships to continue to burn high-sulfur fuel oil rather than very-low -sulfur fuel oil, has slowed, sources told OPIS.

Many shipowners expected a fast payback from their investment in scrubbers as they assessed forward swaps curves for HSFO and VLSFO after the implementation of the new rules from the International Maritime Organization this year, which mandated the use of VLSFO unless the exhaust gas system was onboard.

Very large crude carriers (VLCC) with scrubbers installed that have a price difference between VLSFO and HSFO of $300 will take one year to pay back and four years with a price differential of $100, OPIS was told by Anton Shamray, senior research analyst at marine fuel broker Integr8 Fuels.

At the start of the year, the spread between HSFO and VLSFO barges in Rotterdam was $290/mt, OPIS data shows.

But this spread shrank to $65/metric ton on April 2, which itself was down from $111/mt on March 2.

"Low oil prices and the narrow Hi5 spread, HSFO availability concerns, high freight rates in the tanker market and the need to preserve cash will of course impact scrubber ordering," Shamray said.

"Some owners may potentially find a way to cancel scrubber installation with minimum costs, however for many it may be too far down the line to turn around.

The current narrow Hi5 spread (and we are seeing $50-100 in major hubs) has not completely erased the benefit but increased the scrubber payback period," he concluded.

Oil tanker company Scorpio Tankers confirmed that the company may not see a return on investment in scrubbers, according to its full-year 2019 financial results statement on March 31.

"The realisation of such benefits may be affected by a number of factors, many of which are beyond our control, including but not limited to the pricing differential between high and low sulfur fuel oil, the availability of low sulfur fuel oil in the ports in which we operate and the impact of changes in the laws and regulations regulating the discharge and disposal of wash water," it said in the financial results statement.

Scorpio has installed scrubbers on 46 vessels in its fleet of 138 tankers, with an additional 52 vessels scheduled to be retrofitted with scrubbers by the beginning of 2021 at cost of $2.5 million per vessel.

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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Asia Refiners Cut VRDS Throughput as HSFO Fares Better Than VLSFO

March 31, 2020

Wider usage for high sulfur fuel oil (HSFO) relative to very low sulfur fuel oil (VLSFO) has pushed refiners to cut runs at their vacuum residue desulfurization (VRDS) units, some of which were built specifically to leverage on an expected demand surge due to the IMO 2020 mandate, industry sources said.

Since the start of the year VLSFO prices in Singapore have fallen over 62% since Jan. 2 to $235.118/mt on March 30 compared with a 49% decline to HSFO at $154.90/mt, according OPIS IHS Markit data.

While overall demand for marine fuels have dropped due to the coronavirus disease 2019 (COVID-19), HSFO has fared better due to limited supplies and its direct use as secondary refining unit feedstock, they said.

"The VLSFO price is not good and it is uneconomical to run a VRDS," said a trader. VRDS lowers the sulfur content of vacuum and atmospheric residue feedstocks that are then fed into crackers and also sold as low sulfur marine fuels.

The crack spread of free-on-board (FOB) Singapore 380 CST HSFO to Brent crude jumped to $1.13/bbl on March 30, the highest margin this year since IMO 2020 was implemented on Jan 1.

The IMO mandate calls for the use of marine fuels with sulfur content not exceeding of 0.5% on vessels not fitted with scrubbers.

"Given the strong HSFO market, it makes sense for refiners to reduce utilization of their VRDS to increase HSFO production," said Matthew Chew, principal oil analyst at IHS Markit.

The higher premium of heavy crude over lighter grades could also reduce the operational rates of VRDS, traders said.South Korea's SK Energy recently completed construction of its 40,000 b/d VRDS and is ready for commercial operations after a test run on March 14, SK Energy said in a press statement.

"But the VRDS run rate is not in full capacity due to market conditions because of the firm crack spreads of its high sulfur feedstocks, which the refinery has to adjust its feed inputs," a SK Energy spokesperson said. SK Energy declined to reveal the current run rate of its newly commissioned VRDS.

But the weakness in VLSFO will not stay long as arbitrage cargoes from west of Suez are closed and reduction in refinery run rates also will affect fresh supply, an analyst said. He expects operational rates of VRDS to pick up once demand for VLSFO improves.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Spot Market Bunker Buying Looking Good on Market Collapse

March 18, 2020

Shippers eager to lock in on very-low-sulfur fuel oil (VLSFO, 0.5%S) for 2020 looking to avoid what was initially thought to be in tight supply and of questionable specifications may be missing out on cheap fuel with the decline in the petroleum complex.

"That was the thought early on with the implementation of IMO," said one marine fuel expert. "Fixed price contracts for the new fuel alleviated a lot of uncertainty, right?"

Price certainty associated with contracts was all good until the coronavirus disease 2019 (COVID-19) rocked global demand and OPEC+ was unable to agree on production cuts and the ensuing flood of crude.

"In a falling market spot buying is definitely better than contract [buying]," said a buyer from a U.S. shipping company. "That said, there is the possibility of renegotiating contracts with suppliers. Most won't do that unless you are a very big player with large volume."

Shippers could guarantee a price and specification from a specific supplier in a port, basically securing fuel and a specification from that supplier using various mechanisms -- floating prices, average around loading dates, differential to swaps or other pricing mechanisms.

"Deals can be structured against something like LS gasoil futures," said the fuel oil consultant. "Then things equal out. But if you locked into a flat price for a specific time period, the buyer has to perform at the agreed upon price, which can be catastrophic."

Structured against a future price shows bunkers and products have moved nearly in tandem.

Front-month ICE Brent crude on Jan. 2 was $66.25/bbl. As of 10:50 a.m. ET Wednesday, the front-month Brent was $26.57/bbl, a decline of $59.9%.

Similarly, NYMEX front-month ULSD on Jan. 2 was 202.41cts/gal, while Wednesday's front-month value was at 97.85cts/gal, a drop of 51.7%. Houston VLSFO ex-wharf bunkers were assessed Tuesday at $260/mt compared with $642.50/mt at the start of January, down by 59.5%.

 

--Reporting by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com;

--Editing by Eric Wieser, eric.wieser@ihsmarkit.com

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Rosneft Tenders to Sell Bunker Fuel From April to December

March 16, 2020

Russia's Rosneft is offering up to 1.9 million metric tons of fuel oil from its Tuapse refinery between April and December 2020, according to tender document published on the company's website.

Bids were due today, Monday, March 16 for delivery starting from April 1.

The delivery is for product with a maximum sulfur of 3%, RME180 and RMG380 quality, either FOB Tuapse, or another port on the Black Sea, according to the document.

Payments are to be made in euros. The Russian oil giant changed its payment conditions late last year, asking for payments in euros amid a flurry of sanctions by the U.S. related to Iran and Venezuelan dealing.

 

--Reporting by Paulina Lichwa-Garcia, paulina.lichwa-garcia@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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Singapore Sells Mostly Low Sulfur Marine Fuels in January

February 14, 2020

Singapore sold a total of 3.1885 million mt of low sulfur marine fuels comprising of low sulfur fuel oil (LSFO) and ultra-low sulfur fuel oil (ULSFO) for the month of January, according to the latest data from the Maritime Port Authority of Singapore (MPA).

This as shipowners without scrubbers switched to marine fuels with sulfur level not exceeding 0.5% from January 1 as mandated by the International Maritime Organization. This makes up close to 71% of total sales volume, which amounted to 4.5147 million mt.

Majority of IMO compliant fuels were 380 CST LSFO, where sale volume for January was 2.2183 million mt, followed by 681,700 mt of 100 CST LSFO and 211,000 mt of 180 CST LSFO. Overall, LSFO sale volume for January was 3.111 million mt as compared to 2.6303 million mt in December.

"We saw more demand and enquiries for IMO compliant fuels in January as owners feared there were not enough supply of very low sulfur fuel oil (VLSFO) also known as 0.5% sulfur LSFO," said Vignesh M, bunker trader at Ocean Energy Supply Singapore.

But the uptick sale of low sulfur marine gasoil (LSMGO) with sulfur level of 0.1% continues to be slow. Only 445,900 mt of LSMGO were sold in January, slightly up from 407,300 mt in December.

"With the lower premiums of VLSFO due to weaker bunker demand and sentiments owing to the corona virus, formally known as Covid-19 impact, this could reduce the economics of switching to MGO in Feb. and March," said Matthew Chew, principal oil analyst at IHS Markit.

However, Chew believes MGO uptake could go up in second half year of 2020 as Covid-19 impact subsides and trade activities resume as a result of tighter supply in the VLSFO market.

Demand for high sulfur marine fuels suffered a drastic decline, where 380 CST marine fuel oil sale was 632,300 mt in January, far lower than 1.164 million mt sold in December.

Market analysts said that the fall could be due to some shipowners still actively using high sulfur marine fuels in the last few weeks of December before the changeover.

 

--Reporting by Thomas Cho, (Thomas.Cho@ihsmarkit.com),

--Editing by Raj Rajendran, (Rajendran.Ramasamy@ihsmarkit.com)

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Bunkering in China Affected by Virus, Vessels Avoid Ports on Quarantine Fear

February 12, 2020

Bunkering activities in China were dented amid the spread of the coronavirus, formally known as COVID-19, as the nation seeks to become an international bunkering hub, analysts said.

Vessels try to avoid visiting Chinese ports for marine fuel refueling or have charterers declare force majeure on bunkers to be lifted, they said.

"Shipowners and operators fear that their vessels could face a 14-day quarantine period, if they call at a port which imposes these restrictions and especially so with sea passage that are days fewer than the required quarantine period," said Justin Tan, category manager, Marine Fuels and Hedging at China Navigation Co.

Maritime authorities in Singapore, Bahamas, Cyprus, Hong Kong and Liberia have issued circulars on minimizing the risks of COVID-19 spreading to seafarers, passengers and others on board ships.

Other ports like Palawan in the Philippines has issued a temporary ban of entry on anyone who has been to any part of China, including its special Administrative Regions, within 14 days prior to arrival at their port of entry from entering the province, port agency GAC said.

Ports throughout Australia have already barred vessels from berthing before a 14-day period from their last port of call was China.

Partial shutdown of China's eastern province of Zhejiang has also led to the suspension of marine fuel sales in the port of Ningbo and as well as disrupted sales in Zhoushan.

"Barges operating in Zhoushan are mostly from neighboring port of Ningbo or registered in Ningbo, which requires clearance and temperature checks on the operation crew," said a bunker supplier.

Bunker sales in China averaged around 1 million mt a month, analysts estimate.

China does not publish official bunker sales data. In Singapore, about 4.5 million mt of marine fuels were sold in December, according to the latest Maritime Port Authority of Singapore data.

Vessels that typically bunker in China are for long-haul voyages to the U.S. West Coast and South America, which take around 17 to 30 days.

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Vessels Face Bunker Delivery Delays in Zhoushan After Mandated Holiday

February 10, 2020

Chinese bunker suppliers are facing delays in delivering marine fuels to vessels in Zhoushan due to a shortage of customs officials following an extended Lunar New Year holiday due to the coronavirus, according to several suppliers and shipowners.

The bunkering port is located in Zhejiang province, where the municipal administration announced on Jan. 27 that it was delaying workers from returning to their offices to Feb. 9 in an effort to combat the spreading virus.

"Chinese bunker suppliers always need custom clearance papers to fill and clear, which resulted in some vessels sailing off before refueling," said a shipowner.

Some bunker suppliers also stated that their problems were further aggravated as operational staff on board barges from Ningbo have to undergo temperature checks before entering Zhoushan ports to deliver marine fuels to vessels.

"This could take a few days for barges to get clearance but definitely less than the 14 days quarantine period," a bunker supplier said. One shipowner said some of the bunkering supplies to Zhoushan have been affected and vessels have gone elsewhere to refuel.

A U.S. supplier and a European trader may have placed vessels on subjects to ship back very low sulfur fuel oil (VLSFO) from Zhoushan to Singapore as demand for bunker fuel in Zhoushan could suffer due to these operational issues, according to analysts.

All bunkering activities in the neighboring Ningbo terminal were halted as Ningbo and Taizhou areas are designated as novel coronavirus epidemic areas, market participants said.

 

--Reporting by Thomas Cho, (Thomas.Cho@ihsmarkit.com)

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.co

Copyright, Oil Price Information Service

 

 

Vessels Find VLSFO Hard to Come by in Some Areas

February 7, 2020

Tankers and cargo ships were still having trouble getting very-low-sulfur fuel oil (VLSFO) in certain ports and areas around the world, according to fuel oil non-availability reports filed with the International Maritime Organization (IMO).

One of the latest incidents involved the crude oil tanker Princess Alexia, which was sailing to Basrah, Iraq from South Korea and was looking to refuel while transiting Singapore. The tanker left the port of Yosu, South Korea on Jan. 27 and was expected to be Iraq by mid-Feb.

The report shows agents for the Princess Alexia on Jan. 27 contacted three bunker supply companies in Singapore for a compliant fuel delivery in the areas of Linggi, Port Klang or Eastern Outside Port Limits (EOPL) of Singapore. The bunker fuel supply companies contacted included BMS United Bunkers, Island Oil (Hellas) Limited and KPI Bridge Oil, the report shows.

However, all three bunker companies responded that they could not provide compliant fuel because of either tight deadlines or no avails, the report notes.

"For Linggi Malaysia anchorage or EOPL our local sources cannot accommodate on this occasion," said one response. "Regret but no avails due to tight dates at EOPL;  NOT at all at Linggi or Port Klang," said another.

The ship continued to sail through the Singapore region and noted that it planned to obtain compliant fuel at Fujairah either before or after loading its cargo at the port of Basrah, Iraq.

A second incident recently filed with the IMO involved the cargo tanker MV Aqua Crystal, which was trying to obtain compliant bunker fuel in Chile.

The vessel arrived in the Chilean port of Guaycan around mid-November to load a partial cargo and was then on order to head for port of Huasco. The vessel originally expected to leave Chilean water before the end of 2019, which it could then burn off any non-complaint fuel onboard before the new year started, the report notes.

However, delays forced the ship remain in port of Huasco into the new year and therefore it had to look for compliant fuel with no luck because of no avails, said the report.

"We are constantly checking and will stem sufficient compliant fuel in Callao, Peru in order safely to reach Balboa, Panama," the report notes. "Additional compliant fuel will be stemmed in Balboa, Panama, where the about 1250 mt [of] non-compliant HSFO ROB are expected to be de-bunkered in order not to have any HSFO ROB prior the carriage ban date being 1st Mar 2020."

There are more than 30 non-availability of compliant fuel oil reports filed with the IMO since the start of the year.

 

--Reporting by Eric Wieser, eric.wieser@ihsmarkit.com

--Editing by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com

Copyright, Oil Price Information Service

 

 

Analysis: Houston VLSFO Sinks More Than $155/mt in January

February 3, 2020


Houston very-low-sulfur bunker fuel lost $155.50/mt, or 24.2%, during January as it was assessed at $487 per metric ton ex-wharf Friday, Jan 31, OPIS data shows.

On Jan. 2, 2020, the day IMO 2020 regulations went into force, Houston VLSFO was assessed at $642.50/mtw.

For the month, Houston VLSFO bunkers averaged $566.57/mtw.

Bulk traded VLSFO dropped by $141.14/mt, or about $21/bbl, through the course of January and averaged $527.91/mt ($78.77/bbl). That is a decrease of 23.6%.

Friday's bulk VLSFO premium at Brent in Houston was $9.62/bbl. That premium ranged from a high of $22.82/bbl on Jan. 6 to a low of $9.31 on Jan. 30.

Several factors collided to create downward pressure on the fuel, including the sinking petroleum complex, due in a large part to the coronavirus, but also the bunker market finding the fuel to be well supplied with useable fuel.

"The recent outbreak [coronavirus] aside, I think the bunker market has found that fuel is available, and the uncertainty of varying specifications has not fazed the market," one Gulf Coast bunker supplier said. "It's like a runup to an event, a hurricane or snowstorm, will there be gasoline? Will there be bread and milk? When the initial panic subsides, markets find their proper [pricing] levels.

"We have not heard of ships dead in the water due to using [0.5%S fuel]," he continued. "There were extremists predicting dead ships dotting the seas."

The supplier couched his statements by said that going forward, when blending expanded, there could be some off-spec materials that could cause operational upsets.

As far as a collapsing petroleum complex, March Brent crude saw a drop of about $8/bbl, or  about 12%, though January, while NYMEX front-month diesel fell about 40cts/gal, or the equivalent of about $125/mt. That is a decrease of 19.7%.

Comparatively, marine gasoil in Houston was assessed Friday at $520/mtw, $157.50/mtw below its value on Jan. 2.

High-sulfur fuel oil, in both the bunker and bulk segments, remained somewhat stable throughout the month as its growing use as a feedstock, as well as its typical non-marine use outlets of coking and power generation.

Friday's OPIS assessment of Houston 380 CST bunker fuel at $353/mtw was only $12/mt lower from the Jan. 2 assessment.

On the bulk side, HSFO in Houston lost $30.80/mt ($4.85/bbl) Jan.2-31.

 

--Reporting by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com

--Editing by Eric Wieser, eric.wieser@ihsmarkit.com

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China Refiners to Boost VLSFO, Favor Heavier Crudes After Tax Rebate

January 23, 2020

Refiners in China will likely tweak their crude and product slates in the wake of a government decision to encourage local marine bunker sales by reimbursing taxes, industry sources said, adding that this is also expected to reduce fuel oil imports from Singapore.

Chinese refiners have traditionally stayed away from the marine bunker business because of hefty taxes, and more recently used imported 0.5% very low sulfur fuel oil (VLSFO) to meet shipping industry needs for cleaner burning fuels.

However, Beijing on Wednesday announced that the government will reimburse the 13% value-added tax (VAT) on low sulfur marine fuels supplied to international vessels from bonded warehouses, which opens up a new and viable business for local refiners, the sources said.

The government is also expected to scrap a CNY 1,218/mt ($173/mt) consumption tax on VLSFO to promote the local bunker industry, as ports around the world vie for a piece of the new market following the International Maritime Organization's mandate to use the cleaner burning fuel since January 1.

The move is a boon for medium-to-heavy crudes as refiners in China seek to raise VLSFO output and may also prop up sagging gasoil and gasoline margins as fluid catalytic cracker (FCC) and residue fluid catalytic cracker (RFCC) run rates are trimmed, the sources said.

"Provided VLSFO cracks remain attractive, NOCs (national oil companies) may start re-optimizing FCC/RFCC operations and direct more LSVGO (low sulfur vacuum gasoil) into the VLSFO pool on favorable economics," said Chen Jiyao, oil consultant at FGE in Singapore.

"This will offer some indirect support to domestic gasoline cracks," he added, as gasoline supply is reduced by the lower FCC/RFCC runs.

In the benchmark Singapore market, expectations of reduced VLSFO demand from China and increased gasoil blending into the bunker fuel pool flipped the relationship between the two oil products, traders said.

The February spread between VLSFO and 10ppm gasoil - or 5GO as it is known in the market - closed at a discount of $9/mt on Wednesday, reversing the premium of $2.032/mt at 4:30 pm on the Singapore afternoon online market.

The February 5GO discount widened further to minus $10.50/mt on Thursday morning, according to a fuel oil broker.

OPIS IHS Markit assessed bulk 0.5% VLSFO at $581.935/mt versus 10ppm gasoil at $561.95/mt on Wednesday.

"But how much VLSFO Chinese refiners are willing to produce will still be dependent on the relative production economics of VLSFO against other refined products, said Fenglei Shi, associate director of China Oil Markets at IHS Markit in Beijing.

"This is in turn linked to a wide array of dynamic factors, including but not limited to the light-heavy crude price differentials and China's domestic demand growth for transport fuels."

Crude traders said that the move will increase China's demand for grades that yield a greater volume of residues and heavy distillates.

One factor that's already in their favor is the discovery of the North Sea's biggest oil field in decades, Johan Sverdrup. The crude, which has been available since end October, is a favorite among Chinese refiners because of its medium-density and medium-sulfur.

Johan Sverdrup has 28 API and 0.8% sulfur and another North Sea blend that's also quickly gaining market share in China is Grane with an API of 29 and sulfur content of 0.59%, they said.

"Johan Sverdrup is a good one, but those West African (WAF) and Brazilian medium/heavy sweets should also be supported," said one source.

Swing WAF grades - including Mostarda, Saturno and Gindungo - could also get a bump, especially after recent production outages at Libya which took out supplies of sweet blends, according to crude oil sources.

Where possible, China will also increase its purchases of U.S. heavier grades such Alaskan North Slope (ANS), Thunder Horse and Mars but the bulk of its commitments to buy more U.S. crude will be made up of light-sweet blends, they said.

Some Chinese bunker suppliers said Beijing could allocate around 24 million mt of VLSFO export quota to the four state-owned Chinese refineries, which would lead to changes in their current product slate in favor of residues, and against gasoline and gasoil depending on economics.

Beijing is expected to hand out permits totaling 10 million mt to Sinopec, 6 million mt to Petrochina, 5 million mt to CNOOC and 3 million mt Sinochem.

These companies had earlier said that they would be able to produce such volumes but industry sources noted that they have not done so as the refiners were waiting for the government to change its tax regime on marine fuels.

China imported 152,954 mt of fuel oil from Singapore in November 2019, down slightly from 186,697mt in October last year, according to customs data. But once local refiners boost their VLSFO output, much of these will be substituted with domestic barrels, traders said.

--Reporting by Thomas Cho, (Thomas.Cho@ihsmarkit.com)

--Reporting by Raj Rajendran, (Rajendran.Ramasamy@ihsmarkit.com)

--Editing by Carrie Ho, (Carrie.Ho@ihsmarkit.com)

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Beijing Approves VAT Rebate On Bunker Fuel

January 22, 2020

China has approved a long-awaited rebate in value added tax (VAT) on bunker fuel sales, the Ministry of Finance confirmed today on its website, although there was no mention of the expected removal on consumption tax.

The move will allow expanding Chinese refiners to capitalize on sales and exports of marine fuels to the international market.

The current consumption tax of CNY1,218/metric tons, or $173.40/tons, on bunker fuel was not included.

But some analysts expect this tax will also be removed on sales of very low sulfur fuel oil (VLSFO) along with the VAT rebate.

"China is not short of spare capacity for it to raise production of low-sulfur bunker fuels, including low-sulfur marine gasoil (LSMGO) and very low-sulfur fuel oil (VLSFO), and the government's long-awaited decision to rebate taxes on fuel oil exports is likely to remove one of the biggest obstacle for eligible companies to directly supply China's own international bunker market instead of importing from Singapore," Fenglei Shi, Associate Director of China Oil Markets, at IHSMarkit, said.

The rebate will come into force on February 1, allowing suppliers to recoup 13% of VAT on non-domestic sales of bunker fuel from bonded warehouses.

Beijing is also expected to allocate annual export quotas of marine fuels to four state-owned Chines refineries following the announcement, with 10 million metric tons to Sinopec, 6 million tons to Petrochina, 5 million tons to China National Offshore Oil Corporation(CNOOC)and 3 million tons to Sinochem.

 

-- Thomas Cho   thomas.cho@ihsmarkit.com

-- Edited Paddy Gourlay   patrick.gourlay@ihsmarkit.com

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LSFO Dominates Bunker Sales in Singapore, Shows Shipowner Preference

January 14, 2019

Low sulfur fuel oil (LSFO) has emerged as the marine fuel of choice in Singapore, the world's largest bunker port, as the shipping industry adheres to IMO 2020 rules, latest data from the Maritime Port Authority of Singapore (MPA) show.

There was close to a 60% jump in total LSFO sales in December at 2.63 million mt compared with 1.65 million mt in November, as it even overtook high sulfur fuel oil (HSFO), the traditional mainstay of the bunker market, for the first time, the data showed.

Total sales of HSFO, including 180 CST, 380 CST and 500 CST, fell to 1.27 million mt in December compared with 1.89 million mt in November. Marine gasoil (MGO) sales were a fraction of these as forecasts of it featuring strongly in the bunker market have yet to materialize.

"0.5% LSFO is the preferred choice for vessel operators owing to ease of operation and change over, there's no need to modify lubes, fuel injection system, fuel pumps and the seals, etc.," said Matthew Chew, principal oil analyst at IHS Markit.

The International Maritime Organization (IMO) mandated that from Jan. 1 all vessels would have to burn marine fuels with a sulfur limit of 0.5% if they are not equipped with scrubbers. Previously ships used 3.5% sulfur HSFO as the main bunker fuel.

The data also showed that shipowners still prefer higher viscosity 380 CST LSFO, where Dec sales totaled 2.25 million mt compared with 378,300 mt for 180 CST LSFO.

Overall bunker sales in Singapore, however, slipped as global trading slowed in the face of the China-U.S. trade war.

Turnover in the world's biggest ship refueling hub slipped to a four-year low last year at 47.46 million mt compared with 49.8 million mt in 2018. December sales ticked up to 4.47 million mt versus 4.08 million mt in November, according to MPA data.

Even though delivered 0.5% MGO was offered at below 0.5% LSFO prices, it failed to gain traction.

Sales in December only picked up slightly to 89,500 mt from 56,200 mt in November, while 0.1% low sulfur MGO increased to 407,300 mt up from 374,400 mt, the data showed.

"However, this is still upside to gasoil market once the 0.5% LSFO inventory draws down, resulting in pull for MGO and eventually supporting the gasoil market," Chew said.

Delivered Singapore prices for 0.5% LSFO was at $685/mt, LSMGO at $680/mt and 380 CST MFO at $378/mt, according to OPIS Global Marine Fuels report dated January 13.

At these prices, LSFO is the highest priced oil product in the benchmark Singapore market.

 

-- Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com

-- Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Asia Gasoil Margins Slow to Benefit From Cleaner Shipping Fuel Standard

November 14, 2019

An anticipated boost to Asia gasoil margins brought on by the upcoming tighter shipping fuel standards has so far failed to materialize less than two months before the changes are due to take place.

The global International Maritime Organization's (IMO) mandate to lower marine fuels sulfur content to 0.5% from 3.5% will take effect on Jan 1, 2020, a change that would force refiners to increasingly produce marine fuels from middle distillates rather than just fuel oil.

With Singapore, the world's top bunkering port, selling 47-48 million mt of marine fuel oil a year, the switch was widely anticipated to lift gasoil refining margins.

The gasoil crack spread has, however, been declining as the new year approaches. The Singapore gasoil premium to Dubai crude was assessed at $14.22/bbl on Wednesday, the lowest in five months, according to OPIS data. The spread was sharply higher at $18.05/bbl a year ago.

Ample regional supply was a key factor depressing margins, traders said. Around 1.3 million b/d of new refining capacity are expected to come online in Asia and the Middle East between Oct. 2019 and June 2020, adding to gasoil supply.

Poor domestic demand also led to an export surge from India, which shipped 3.48 million mt of diesel in September, the highest at least eight years. India's monthly diesel exports averaged just 2.21 million mt from January to August this year.

With refineries still to return from upgrading works, India 's gasoil exports would likely remain at 3 million mt or higher in the coming months, an India-based trader said.

Expectations for a massive switch from marine fuel oil to marine gasoil in the short term might have been overblown, market sources said. Fuel oil traders in Asia began stocking up on low sulfur marine fuel oil components since early this year, resulting in a slew of tankers being used as floating storage for these components.

At least 45 tankers carrying close to 10 million mt of mostly residual fuels were in Singapore and Malaysian waters as of early-November, according to oil shipbrokers.

Another 20.355 million bbl are in Singapore's onshore tanks as of this week, that around 30% more than a year ago, according to data from Enterprise Singapore.

The economics of producing low-sulfur marine fuel from fuel oil or gasoil vary from company to company but the former is probably still an attractive option to some producers, especially if fuel oil costs are much less than gasoil, a market source said.

Singapore 380CST HSFO was assessed at a $334.40/mt discount to 10ppm sulfur gasoil on Wednesday, sharply wider than the $102/mt discount on Jan. 2, according to OPIS data.

Recent sales of 0.5% sulfur marine fuel oil also reflected a widening spread between low sulfur fuel oil and gasoil that should be attractive to buyers.

Taiwanese state-owned refiner CPC sold last week 40,000 mt of 0.5% low sulfur bunker grade fuel oil loading in December from Kaohsiung at around a $74/mt discount to Singapore 10ppm sulfur gasoil.

A month ago, South Korea's S-Oil sold 20,000mt of fuel oil of similar quality for October-loading from Onsan at a $30/mt discount, market sources said.

Uncertainties, however, still abound in the nascent 0.5% sulfur marine fuels market. Concerns over the usability, stability and mixability of different types of fuels remain, which might encourage shipowners to use marine gasoil instead.

"We estimate that about 60-70% of the low sulfur marine fuels used next year will be marine gasoil as the industry is already using this product, they are confident of its quality and its readily available globally," said Matthew Chew, principal downstream analyst at IHS Markit in Singapore.

Spot and term deals for marine fuels are also being done on different pricing basis using either fuel oil or gasoil assessments. Depending on the price spreads, suppliers might be incentivized to produce low sulfur marine fuel from fuel oil and sell them using gasoil as the pricing basis.

Forward markets on Thursday suggest low sulfur fuel oil and gasoil supplies could remain ample in the very short term. The Singapore gasoil market is in a slight monthly backwardation of only $0.05-$0.10/bbl from January to March while the low sulfur fuel oil market is in a contango of $1-$2.75/mt over the same period.

-- Hanwei Wu, Hanwei.Wu@ihsmarkit.com

-- Thomas Cho, Thomas.cho@ihsmarkit.com

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Uncertainties Dominate Asian Refining Outlook Going Into Peak Winter Season

November 13, 2019

Asian refiners face a tricky end to the year as they bank on IMO 2020 and winter to boost oil product demand in the face of growing supplies from units resuming operations after maintenance and new ones cranking up runs, according to industry sources.

Bets are on for the International Maritime Organization's (IMO) mandate to use lower 0.5% sulfur marine fuels to draw huge amounts of middle distillates into the bunker pool as there aren't enough supplies of residue fuels to meet the new stricter sulfur threshold.

"We estimate that about 60-70% of the low sulfur marine fuels used next year will be marine gasoil as the industry is already using this product, they are confident of its quality and its readily available globally," said Matthew Chew, principal downstream analyst at IHS Markit in Singapore.

This surge in IMO-led gasoil demand and seasonal heating fuels requirements should keep distillate cracks, which form the largest component of a refiner's margin, strong in the coming winter months, according to IHS Markit research.

However, some in the industry question if incremental distillate demand spurred by the IMO switch would be enough to soak up all the surplus barrels in the face of innovative blending by players that include heavy-sweet crude oil and products such as cycle oil and bitumen to create marine fuels that meet the 0.5% sulfur limit.

They also point to uncertainties over how much residue desulfurizer (RDS) capacity is available within the Asian refining system that could be cranked up to the maximum to produce more low-sulfur fuel oil (LSFO) instead of using gasoil, which typically is more expensive.

Expectations of a seasonal spike in winter heating demand among Northeast Asian countries have so far been tempered by warmer weather. Forecasts are for the unseasonably high temperatures to remain for the rest November and much of December, according to AccuWeather data.

Refining capacity that will be out for maintenance, including unannounced closures, in November shrank to 1.731 million barrels a day (b/d) down sharply from 2.237 million b/d in October, according to the latest IHS Markit outlook for Asia and the Middle East.

Turnarounds in December are forecast to shrink to a paltry 510,000 b/d just head of the expected January surge in lower sulfur fuels. Announced maintenance in January was at a tiny 88,000 b/d but IHS Markit estimates unannounced closures to reach 759,000 b/d based on historical data.

raj 1113

In addition to the high utilization rate, the year-end will also see several new refineries cranking up runs and optimizing secondary units.

Among these are Hengli in China with 200,000 b/d and Hengyi in Brunei with 175,000 b/d crude distillation units, both of which started earlier this year and are now ramping up all their units to full capacity.

The Saudi Aramco and Petronas joint venture Malaysian refinery in Pengerang is still struggling to reach its full 300,000 b/d capacity after a fire in April severely damaged an atmospheric residue desulfurizer, which in turn reduced runs at a key 140,000 b/d residue fluid catalytic cracker.

This facility will only reach full output in the second or third quarter of next year, sources said earlier.

Another mega refinery that is also slowly raising its output is the 200,000 b/d Rongsheng refinery with full rates expected around the second quarter.

These new refining capacities in Asia look to be coming onstream at a time of new crude oil sources that is putting a cap on prices even as sanctions against Iran and Venezuela trimmed the supply of heavy sour barrels.

Traders said Asian refiners got a scare in September after freight rates soared to double and even triple in some cases after a trio of shocks to the shipping industry within the space of weeks.

First after the missile and drone attack on Saudi oil facilities, followed by U.S. sanctions against six Chinese shipping companies, including two Cosco units, for transporting Iranian oil and finally oil companies such as Exxon refusing to use tankers that have called on Venezuelan ports in the past year.

Tanker rates have since dropped back to about 30-40% above the levels prior to these incidents, which have re-opened long-haul and spot arbitrage flows from as far away as the U.S. Gulf Coast, Canadian east coast, Russian Baltic and the North Sea.

"The arbitrage is open again, shipping cost is not a big factor anymore and we can source our barrels from most places again," said one crude trader.

The other cuts of the barrels appear to be well supported with naphtha holding its own on the back of shortfalls of exports from Saudi Arabia following the Sept. 14 attacks and renewed demand from splitter operators in place of more costly condensates.

"Gasoline cracks are climbing because some refiners are scaling back fluid catalytic cracker (FCC) runs and diverting the feed to the bunker pool," Chew said.

He said the economics allow refiners, that have RDS capacity, to bring down the sulfur content of the FCC feeds before selling them as marine fuels.

However, one other unanswered big question is the fate of unused high sulfur fuel oil (HSFO) after sales as bunkers and used within the refining system as feedstock. There are fears that refiners may take a big hit from this if the fuel is eventually only used for its thermal properties, the sources said.

HSFO prices have plunged as the market gets closer to the January IMO deadline with the crack forecast to tumble to $30/bbl below Dubai crude in next March/April from the current minus $20-$22/bbl, according to IHS Markit estimates.

Consequently, the focus is back on the product market, which typically going into winter would be buoyant but somehow this year there are some trepidation mostly due to the new refining capacities, warmer weather forecasts and uncertainties over IMO-led distillate demand.

-- Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Analysis: IMO 2020 -- Where Does LPG Factor as a Bunker Fuel?

October 1, 2019

A growing roll call of tanker owners has been gearing their fleets towards meeting the IMO 2020 low-sulfur bunker rules -- using either the newer VLSFO (very-low-sulfur fuel oil) or fitting scrubbers into the exhaust stacks to handle existing fuel. With less than 100 days to go, the pace of tanker newbuilds and conversions to meet the new rules appears to be accelerating.

However, one fuel has been largely overlooked by many -- that fuel is liquified petroleum gas, or propane and butane. A few owners in the VLGC (Very Large Gas Carrier) sector have taken the plunge, deciding to opt for powering their ships with the same fuel they transport and ordering LPG-fueled newbuildings.

Currently, no VLGCs on the water are running LPG in their engines, though between six and 10 VLGC newbuildings are understood to be under construction to run the light gas liquid fuel.

Typically, a VLGC will run anywhere between 40-45 tons/day of IFO380, the standard fuel for such vessels. The range of consumption depends on whether they slot into the recent class of more modern "eco" design VLGCs, or slightly older generation units.

To run LPG as the main engine fuel, industry experts suggests similar consumption figures for the vessels, compared to currently used fuel oil.

Though comparatively specialized, gas carriers carrying the same cargo as the fuel highlights a secondary issue, that of available bunkering. Of course, loading and discharging at LPG terminals would enable the large ships ready access to LPG, should they require it for their engines.

A look at existing fuel oil bunkering points around the globe suggests fueling or bunkering with LPG may not be so big an issue, as many have access to local sources of LPG.

Key bunkering points for gas carriers include Houston, the ARA (Amsterdam-Rotterdam-Antwerp) region, Algeciras (Gibraltar), Dubai and Singapore. With the possible exception of Algeciras, LPG is known to be readily available at all these points, though Algeciras lies just across the water from the largest exporter of LPG in the Mediterranean -- Algeria.

Will propane meet the new sulfur limit? Easily, is the short answer. The new IMO 2020 regulations will require ships to run on VLSFO from January 2020, or fit sulfur capture technology in the exhaust stacks. The new maximum sulfur content will be 5,000 ppm. Typical sulfur content of LPG, containing even the highest amounts of sulfur -- usually refinery grades -- has been seen at a high of 120-150 ppm, while field-grade material -- the majority -- runs at a fraction of this.

Then there is the price differential for running, for example, propane in place of IFO380. The shale gas revolution in the U.S. and gas-related projects globally have pushed worldwide LPG production to over 310 million tons per year, with most of the new volumes originating in the U.S. Just under a third of this moves by sea, with U.S. exports set to increase. This in turn has driven down the price of propane, which has fallen to 35% to WTI crude in September 2019, compared to 48% in the same month just five years ago. By comparison, the price of IFO380 in Houston was an average 116% to WTI this September -- though local bunker operators are understood to be reducing the availability of tank space to make way for the new VLSFO, tightening the IFO380 market for the time being.

Then there is the technical side. Producing an LPG carrier to run LPG as bunkers would require either constructing pressurized tanks inside the hull in place of the normal bunker tanks, or piping direct from the main fully refrigerated tanks via a reheater, assuming additional tons are factored into the cargo space. A third option is deck-mounted pressurized tanks -- though this is not a plausible alternative for retrofitting to all existing gas carriers, as only some vessels are suitable for the conversion. One major owner is understood to be taking this latter route for four VLGCs out of its fleet.

Only time will tell how many in this niche sector of the hydrocarbon business will decide to go down the road towards LPG as bunkers.

However, LPG supply is still growing. According to Edgar Ang, IHS Markit consulting analyst, 'As for U.S. production, it won't stop, can't stop ... 2020 will be more, but the growth curve slows compared to 2018-2019.'

--Dermot McGowan, dmcgowan@opisnet.com

--Tom Sosnowski, thomas.sosnowski@ihsmarkit.com

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Shipping Coalition Aims for Zero-Emissions Vessels Within a Decade

September 23, 2019

As the world prepares for new rules to clean up marine exhaust starting in January, a new group has launched an effort aimed at having a commercially viable zero emission vessels operating along deep sea trade routes within 10 years.

The Getting to Zero Coalition announced its efforts in conjunction with Monday's United Nations Climate Action Summit in New York. The coalition, which describes itself as "a powerful alliance representing senior leaders within the maritime, energy, infrastructure and finance sectors," said its project is aimed at helping the UN reach its target of cutting shipping industry greenhouse gas emissions by 50% of 2008 levels within 30 years.

"Decarbonizing maritime shipping is a huge task with no simple answer, but it has to be done," said Ben van Beurden, CEO of Royal Dutch Shell, which supports the coalition. "We intend to be part of the long-term, zero-carbon, solution by seeking out the most feasible technologies that can work at a global scale. Starting now is essential because ships built today will stay on the water for decades."

International shipping accounts for up to 3% of global greenhouse gas emissions annually, the group said. Emissions are projected to grow by 50% to 250% by 2050 if no action is taken, according to an announcement about the initiative.

The UN International Maritime Organization has mandated annual greenhouse gas emissions must be reduced by at least 50% of 2008 levels by 2050, with the ultimate goal of phasing them out completely as soon as possible.

The IMO has also mandated that ships reduce sulfur emissions in their exhaust starting in January. This means ships must either burn cleaner fuel or be fitted with exhaust gas cleaning systems, known as scrubbers, to remove sulfur particles.

The Getting to Zero Coalition is a partnership between the Global Maritime Forum, the Friends of Ocean Action and the World Economic Forum. The group says it is supported by more than 70 public and private organizations.

The coalition said its efforts are aimed at setting the stage for a wider decarbonization of world energy markets.

"If international shipping becomes a reliable source of demand for zero emission fuels ... this can increase confidence among suppliers and translate into an increased supply of feasible zero emission fuels and thus be an important point of leverage for change across other hard-to-abate sectors," the group said in its announcement. "The demand for zero emission fuels derived from renewable resources has the potential to drive substantial investment in clean energy projects in developing countries with a large untapped renewable energy potential."

--Steve Cronin, scronin@opisnet.com

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Trade in VLSFO Swaps Picking Up

August 22, 2019

Trade is picking up in the emerging very-low-sulfur fuel oil (VLSFO) swaps market as IMO 2020 approaches, Chris Hudson, Senior Broker, FIS Fuel Oil and Tanker derivatives, London, told OPIS in an interview today.

But the market is starting to split between different types of swaps.

The most-active swap is trading VLSFO barges in ARA as a differential to high-sulfur fuel oil (HSFO) barges.

But interest in trading VLSFO barges in ARA as a flat price has also picked up in August, especially to hedge Q4 2019 and Q1 2020 exposure, Hudson told OPIS.

Uncertainty over the amount of early switching to VLSFO could create a highly volatile market in the last three months of the year.

Fourth-quarter VLSFO paper was trading around $186/ton above HSFO paper yesterday, split between $167.50/ton in October, $191/ton in November and $206/ton in December.

But if HSFO demand is much stronger than expected over the fourth quarter, the spreads would narrow sharply.

"Some shipowners who have installed scrubbers are hedging against a potential collapse in the VLSFO/HSFO spread by selling it," Hudson said.

"If the spread does collapse, the shipowners want to be covered," Hudson said.

Refiners have also been selling the differential swap to lock in a margin.

There is a wide contango in the VLSFO paper over the next four months, with the spread between September and December currently trading around $26.50/ton.

Most of open interest of the differential between high-sulfur fuel oil and VLSFO is for calendar year 2020, where 140 lots are outstanding for barges on ICE.

FIS are using both CME and ICE as clearing houses.

The International Maritime Organization mandate requires that as of Jan. 1 ships must either switch from using high-sulfur fuel bunker fuel with 3.5% sulfur content to cleaner, very-low-sulfur fuel oil with only 0.5% sulfur unless they have scrubbing technology onboard to remove the sulfur from emissions.

--Nandita Lal, nlal@opisnet.com

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Minerva Bunkering Closes Los Angeles Office

Reported exclusively by OPIS Managing Editor, Americas Marine Fuels Tom Sosnowski on August 1, 2019.

Minerva Bunkering, a global physical supplier of marine fuels and a fully owned subsidiary of Mercuria Energy Group, closed its Los Angeles office on Wednesday, according to a bunker source with knowledge of the situation.

"The LA office is gone," the source said. "What I heard was basically they are going to continue to operate [in Los Angeles] from the New York office, but I am a little skeptical of that."

A person at Minerva in New York confirmed the office closure.

West Coast supply and trading manager Keith Richardson and marketer Ray Bacani are confirmed to no longer be with Minerva.

The Los Angeles operation is formerly part of Aegean Marine Petroleum Network, which was purchased by Minerva in April 2019 following voluntary Chapter 11 restructuring that commenced on Nov. 6, 2018.

Market speculation is that one reason for the departure from Los Angeles could be a result of Minerva losing its storage tanks. The company had moved its storage from Vopak to NuStar in Southern California about a year and a half ago, and apparently lost those two tanks as NuStar leased them to someone else for non-bunker storage.

The departure of Minerva in Los Angeles leaves just three major players in the market: Chevron, Peninsula and Chemoil.

--Tom Sosnowski, thomas.sosnowski@ihsmarkit.com

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