Global bunker fuel demand is likely to fall by 5%-10% year on year in 2020 as the coronavirus pandemic slows trade and impedes shipping and ship crew movements in many countries, a bunker industry expert said.
“Major bunkering hubs worldwide likely saw their bunker fuel sales rise in the first few months of 2020 due to strong LSFO [low sulfur fuel oil] demand. But the COVID-19 crisis has caught the world off-guard,” Simon Neo, executive director at Singapore-based consulting firm SDE International, told S&P Global Platts on May 26.
Singapore’s April bunker fuel sales volume rose year on year as shipowners availed larger stems of LSFO amid the collapse in crude oil prices, Neo said. On the year, April sales volume rose 10.82% or 401,600 mt, data from the Maritime and Port Authority of Singapore showed.
However, this momentum may not be sustainable as the country’s latest GDP outlook points towards a sharp contraction, Neo said.
Singapore’s GDP is expected to shrink between 4% and 7% this year, lower compared with the previous projection of between 1% and 4% contraction, Singapore’s Ministry of Trade and Industry, or MTI, said on May 26.
Still, bunker fuel demand in Singapore will likely remain steady this year as shipowners continue to repose faith in the world’s largest bunkering port, Neo said.
Singapore also saw two players — Minerva Bunkering and TFG Marine — enter its bunker market recently as licensed bunker suppliers. This comes as Ocean Bunkering Services, a subsidiary of Hin Leong Trading and among the top physical bunker suppliers, was heard to have temporarily ceased bunkering operations from April 18 onwards.
Neo said that OBS’ suspension of operations was unlikely to have a significant impact on Singapore’s bunker dynamics as the present market structure can cater to existing demand.
Nearly six months since IMO 2020
“We have seen almost six months pass after the implementation of the IMO 2020 global sulfur limit rule. The transition has been fairly smooth so far,” Neo said.
Initial fears about the escalation of bunker fuel quality issues due to the widespread adoption of LSFOs and blended fuels have been mostly quelled, he said.
While there were some bunker fuel quality issues related to sedimentation as well as pour point at the start of the year, the impact has not been that significant, he said.
“Compatibility has not been a major issue either. So, the quality part of the new blended fuels has been quite satisfactory,” he said.
Strict port state controls have also kept a lid on non-compliance to the IMO 2020 rule as well as the IMO’s HSFO carriage ban, which started March 1, he said.
The MPA on April 27 said that in the first-quarter, it had conducted a total of 326 port state control and flag state control inspections in the Port of Singapore.
During these inspections, MPA found 12 ships, which were not fitted with scrubbers, using fuel that marginally exceeded the sulfur limit. Additionally, only two foreign-registered ships were found to be using non-compliant fuel, the MPA said then.
The HSFO-LSFO spread has narrowed “quite a fair bit”, reflecting the drop in crude oil prices amid sagging demand, Neo said.
“However, I don’t see it [HSFO] going higher than LSFO as LSFO requires blending of distillates, which in general are more expensive,” he said.
Scrubber prospects have received a setback and installations are getting delayed as many shipyards in China and South Korea are still closed, Neo said. The narrowing HSFO-LSFO spread has also acted as a disincentive for some shipowners to opt for the technology, he said.
The spread between Singapore delivered Marine Fuel 0.5%S and Singapore delivered 380 CST high sulfur fuel oil has declined from an average of about $298.90/mt in January to around $68.20/mt in April, Platts data showed.
Meanwhile, Neo said that HSFO prices will likely remain subdued unless there is a sudden jump in demand.
“This could happen if say, half of the world’s total shipping fleet of around 90,000 vessels switch to scrubbers,” Neo said. “But that’s unlikely,” he added.