Marine Fuel 0.5%: Sluggish demand, ample supply mar near-term outlook
The marine fuel 0.5% market is unlikely to see any significant rebound from prevailing levels due to lackluster demand coupled with abundant supply.
Reflecting an overall bearish sentiment, the market structure at the front of the Singapore marine fuel 0.5% swaps curve has dropped sharply into the negative territory, falling from minus $2.50/mt on March 2 to minus $8.00/mt on March 31, S&P Global Platts data showed.
Despite a sharp fall in the flat price from a slide in crude prices, and reports that some of the demand from North Asian bunker ports had shifted to Singapore due to a severe outbreak of COVID-19 in major bunkering hubs like China and South Korea, Singapore-based traders have said bunker demand has been steady at best.
“Bunker demand is still slow; I think there is plenty of supply,” a Singapore-based fuel oil trader said.
Singapore-delivered Marine Fuel 0.5% fell to an average of $270.50/mt in the second half of March from $377.50/mt in the first half, S&P Global Platts data showed.
Market sources say they expect arbitrage supply in April to be around 2.5 million mt, down from 3 million-3.5 million mt for March. Even so, low sulfur material to the tune of over 10 million mt is said to be stockpiled on landed tanks in Singapore and in floaters in and around the city-state, traders said.
Traders attribute the lower April arbitrage volume to a weak market outlook in Asia and high freight rates to move oil from the West.
The market is still uncertain about whether the lower inflow of cargoes will reduce the supply surplus. “Demand is the key,” another fuel oil trader said.
The impact of the coronavirus pandemic set the scene for the marine fuel 0.5% market in Europe in March, as the market shifted from well-supplied to a supply overhang relatively quickly.
Subdued demand as well as tepid arbitrage pull from Singapore added to volumes in Europe, with inventories hitting a 27-week high in the Amsterdam-Rotterdam-Antwerp hub during the month. In addition, Brazilian cargoes due to head east to Singapore were offered in the European market, further weighing on oversupply concerns.
Platts assessed 0.5% Marine Fuel FOB Rotterdam barges at $204.5/mt on March 31, down 45% on the month and having hit fresh lows of $179/mt on March 18.
Some participants turned to storage options in response to the contango market structure and weakened demand. Reports of limited storage capacity on land in the Mediterranean as well as in Northwest Europe were leaving participants looking at floating storage instead, but rising freight rates have not helped the economics for this alternative either.
“Everything [land-based storage] is pretty much taken already,” a source said. “[There is] not much you can do, you take the price that you find.”
As the flat price of 0.5% marine fuel nosedived in response to crude prices, the spread between 0.5% and 3.5% bunker fuel at Rotterdam narrowed to a record low of $43/mt on March 23.
As an indicator of the investment payback for scrubber installations, some shipowners were having second thoughts about payback economics as the pressure on marine fuel prices raised the stakes.
However, some analysts say the scrubber bet could still come off. “Investors in scrubbers know what they are doing financially, buying themselves a device that cuts fuel cost permanently,” BIMCO analyst Peter Sand said.” The device will likely return the investments many times over.”
As market conditions remain largely driven by demand dynamics, many look to question when healthy demand will return to the market.
US marine fuel prices in March fell on a lack of demand and sudden falls in the underlying crude complex. USGC Marine Fuel 0.5%S was assessed at $189.75/mt on March 31, down from $373.50/mt on February 28.
The coronavirus pandemic, sources said, receives much of the blame for the drop in prices, though some also pointed to other macro factors like the inability for OPEC to agree on output reductions.
The pandemic has reduced retail bunker demand to near zero in a matter of weeks, traders said.
One USGC trader said several companies were planning to export marine fuel 0.5% due to a lack of US demand. Many shelved plans, however, as Suezmax rates from the US Gulf Coast to Singapore moved from $4.5 million at the end of February to $9 million by March 31.
One US source did say there were some fixtures that ended up leaving the US, though likely not enough to clear out the supply overhang.
March saw a rise in liquidity for USGC marine fuel in the Platts Market on Close assessment process. There were 16 trades in March for a total of 112,000 mt, by far the most trades for the product in a single month.