IMO 2020 leads to sharp rise in European bunker premiums
European bunker premiums for delivered product over its respective upstream market have risen significantly on the back of IMO 2020, despite narrowing in the past week, S&P Global Platts data showed.
At some ports, demand for IMO-complaint 0.5% bunker fuel has strained availability in the weeks running up and following IMO 2020 implementation, pushing premiums and costs higher than historic balances for 3.5% HSFO.
While 0.5% VLSFO bunker premiums in Rotterdam have softened on re-balancing demand from highs in October, they remain noticeably higher compared to last year’s premiums for 3.5% HSFO.
The differential between 0.5% bunkers delivered Rotterdam over 0.5% FOB Rotterdam barges has averaged $13.66/mt in January so far, almost double the average of $7.28mt for 3.5% HSFO in January 2019.
HSFO was the marine fuel of choice prior to the new International Maritime Organization rule requiring ships to burn fuel with a maximum sulfur content of 0.5%, which came into force this year.
In the Mediterranean, an already wide premium has soared as a result of the marine fuel switch.
The differential between 0.5% bunker delivered Gibraltar and 0.5% marine fuel CIF Med cargoes averaged $90.38/mt in January so far, tripling from 3.5% HSFO’s differential of $29.11/mt in January 2019.
Amid significant premiums in the Mediterranean along with pockets of tightness, there have been reports of 0.5% cargoes heading south to the Mediterranean from Northwest Europe, according to market sources last week.
The bullish pressure for 0.5% has narrowed the gap between VLSFO and marine gasoil, at some ports in the Mediterranean and this has led to some sources indicating price levels for 0.5% S FO above those of MGO.
This has been most pronounced at Istanbul, where the spread between 0.5% S FO delivered values and MGO delivered values was assessed Thursday at $7/mt, compared with $40/mt at Gibraltar and $24/mt at Rotterdam.
Soaring fuel costs
Likewise, prices for bunker fuels have risen 40% compared with a year ago due to higher refining costs for IMO 2020-compliant fuels as well as surging demand and busier barging schedules.
Platts assessed 0.5% S bunkers delivered Rotterdam at $511/mt Thursday, while 3.5% S was assessed $148/mt lower at $363/mt a year ago.
“Even given the recent narrowing of the spread, shipping companies are still faced with a massive uptick in fuel oil costs,” the chief shipping analyst of shipowner body BIMCO, Peter Sand, said in a statement Thursday.
“[This] is set to affect operating margins in the upcoming quarters [as] many companies have little leeway to pass on the additional costs to their customers,” Sand added
A shipowner said last week: “Fuel prices are killing us right now.”