Higher bunker demand from the Middle East has tightened the supply of high-sulphur fuel oil (HSFO) and thus narrowed the price spread between the cheaper bunkers and their costlier alternative, according to an analyst.
The average price spread between HSFO and very-low sulphur fuel oil (VLSFO) reached as high as $400 per tonne last year, but it has since dropped to $73 per tonne. That came as HSFO prices rose due to higher demand, Clarksons Securities’ Frode Morkedal wrote in a note on Tuesday.
The difference narrowed to as low as $64 per tonne last month, representing the lowest spread since 2020, as a result of those rising HSFO prices and falling VLSFO prices, he said.
“The narrowing of the spread can be attributed to tighter HSFO supplies,” he said.
Since 13 June 2022, the average global 20-port price for HSFO has risen 23% from $480.50 per tonne to $591 per tonne on Monday, according to Ship & Bunker.
At the same time, the same average price for VLSFO has fallen 40% from $1,117.25 per tonne to $668.50 per tonne on Monday.
Less oil from Russia and reduced sour crude exports from the Middle East and have led to the higher HSFO demand and prices and consequent tighter price spread between the two fuel grades, Morkedal said.
“This situation has been further intensified by robust summer demand for fuel oil in the Middle East,” he said.
“While Middle Eastern demand is expected to decrease, ongoing production cuts from Russia and Saudi Arabia may continue to sustain tighter HSFO supplies.”
Morkedal pointed out, however, that the price spread varied by region but kept an average difference of $106 per tonne in the ports of Fujairah, Houston and Singapore, which matter most to the deepsea fleet.
