The increased use of vessel exhaust scrubbers has boosted HSFO demand, narrowing the spread with lower-sulphur bunker fuel, write Sammy Six and Sarah Giam
Very-low sulphur fuel oil (VLSFO) has fallen to a 10-month low against high-sulphur fuel oil (HSFO), pressured by abundant supply and slow demand.
The VLSFO premium to HSFO, also known as the scrubber spread, fell to around $145/t on 2 March from a peak of almost $600/t in July. The drop represents a reversal of fortunes for vessels operating a scrubber — an exhaust gas cleaning system that allow ships to burn HSFO without contravening the International Maritime Organisation's 0.5pc bunker fuel sulphur limit.
Recessionary fears have dampened demand for bunker fuel across all grades, which typically narrows the quality spread. But HSFO prices have held up better than VLSFO, possibly following an increase in scrubber investments.
"The strength in HSFO is also due to more scrubbers out there because of the high spread last year, boosting demand," a trader says.
Market participants were expecting HSFO prices to be depressed because of increased Russian inflows, mostly of the high-sulphur grade diverted to Asia-Pacific after EU sanctions on Russian products imports. "Despite lots of discounted residual Russian barrels in the region, most trading houses here cannot touch them due to self-sanctioning," a Singapore trader says. This has led to a two-tier market for the product since western sanctions on Russia took effect.
Firmer south Asian utility demand, particularly from Bangladesh, has also supported markets. Fuel oil arrivals in Bangladesh in February are projected at three-month highs of 45,000 b/d, data from oil analytics firm Vortexa suggest.
At the same time, plentiful LNG inventories and lower LNG prices have pressured VLSFO demand from northeast Asian utilities. An influx of VLSFO from Kuwait's new 615,000 b/d al-Zour refinery is also weighing on the markets. Kuwait's state-owned KPC has sold more than 40,000 b/d of VLSFO for loading over November 2022-April 2023, some of which has headed to Singapore. It has also sold up to 30,000 b/d more of VLSFO for loading in March-May.
Singapore VLSFO vs HSFO
