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Asia fuel oil spot premium at record, market says last sputter before dying out

Asia’s spot premium for marine fuel benchmark 380-centistoke (cst) high-sulphur fuel oil (HSFO) has touched record highs this week as shippers clamoured for limited supplies ahead of a sulphur cap in shipping fuels that starts next year.

The cash premium for 380-cst HSFO rose in the three consecutive sessions through Wednesday, hitting $41.01 a tonne above Singapore quotes, more than 10 times higher than a year ago.

The HSFO premiums are expected to ease in coming months, though, as shippers from 2020 comply with the new International Maritime Organization (IMO) rules requiring the use of bunker fuel with a sulphur limit of 0.5%, down from 3.5% currently.

“Finished grade residual marine fuels are in short supply owing to IMO 2020,” said Matt Stanley, an oil broker at StarFuels in Dubai.

“Demand is still there for HSFO but with less people willing to store, the market will continue to stay strong until early-December, when people will shift to burning low-sulphur fuels.”

Under the new IMO rules, only ships with expensive equipment known as scrubbers, which remove sulphur from emissions, will be allowed to continue burning HSFO.

The current demand for HSFO is “going to disappear” in another couple of months, “remaining may be about 10% of what it is today,” said Lars Malmbratt, general manager for bunker procurement at Swedish shipping company Stena Bulk.

“We’re going to continue burning HSFO in our scrubber ships but its availability around the globe is a bit of a challenge to the extent of how much of HSFO supply will be in storage when the demand is dropping so dramatically,” Malmbratt said.

HSFO production has dropped as refiners are concerned the dirty fuel would lose its value by year-end with the market adopting cleaner low-sulphur variants for bunker fuels, industry sources and traders said.

The trade sources declined to be identified as they are unauthorised to speak to the media.

Traders have also curtailed their HSFO imports as the market is in steep backwardation, making it uneconomical to store the product, sources said. In backwardation, the prompt-month contract is more expensive than subsequent months.

The prompt-month time spread for 380-cst HSFO was at a record premium of $43.50 a tonne on Wednesday, beating the previous high of $39 on Aug. 1, Refinitiv data showed.
Source: Reuters (Reporting by Koustav Samanta in SINGAPORE; Editing by Florence Tan and Tom Hogue)

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