Shipowners are being incentivised to accelerate their switch to 0.5% sulphur fuel because disruptions to Saudi Arabian oil is reducing high-sulphur bunker supply.
Analysts at JBC Energy expect that some shipowners will prefer to start their switch to low-sulphur fuel oil (LSFO) soon due to price incentives, ahead of the IMO's 1 January 2020 deadline for compliance.
The price of 3.5% high-sulphur fuel oil (HSFO) in Singapore increased to $510.5 per tonne on Thursday from the week-ago level of $448, according to Ship & Bunker.
The price for 0.5% sulphur fuel was at $555 per tonne on Thursday, compared with $538.5 per tonne a week earlier.
The narrower price spread between two grades of bunker fuel came as Saudi Arabia was forced to reduce HSFO exports after last weekend’s drone attacks knocked out large oil production capacity in the country,
While Saudi officials have promised to resume crude supply this month while restoring upstream production, JBC pointed out the country’s HSFO exports would likely to stay low due to higher domestic demand.
“Such a scenario would see more HSFO burned in place of crude, thereby crimping Saudi HSFO exports to Fujairah and Singapore, which seasonally would trend up following the end of the peak summer burning season,” JBC said in a note.
Saudi Arabian power plants generally run on crude, but they can also switch to HSFO when needed.
“The outage is likely to support physical HSFO [price] further given a strong incentive to limit crude burning in order to free up exports for term crude commitments,” JBC said.
“We have ... heard that some fleet managers have already given orders to cease bunkering HSFO with immediate effect and instead draw down on-board HSFO bunkers in preparation for IMO.”
“While we expect these to be the more cautious players, the trend could grow if the price spread remains narrow, or as a means to avoid growing volatility coming from an increasingly illiquid market.”
