Oil price increases have stalled at about US$40/bbl, around 30% lower than a year, but considerably higher than the April lows as the Covid induced lull in consumer demand has hit prices.
According to MABUX some weeks ago, it looked like oil and fuel demand would have a V-shaped recovery, but the recent resurgence in Covid-19 cases in many parts of the world and the real possibility of new lockdowns has slowed the fragile recovery again.
Even so the MABUX World Bunker Index has showed insignificant irregular changes for the second week running. The 380 HSFO index rose slightly from US$303-305/tonne (up US$2), VLSFO gained US$1 from US$361-362/tonne, MGO was steady at US$443/tonne.
The global price difference between 380 HSFOs and VLSFOs, the so-called scrubber spread, averaged US$56.59 (US$57.06 a week ago). In the meantime, there was a sharp drop in the average spread in both Rotterdam and Singapore last week, declining US$13.83 to US$51.00 and minus US$10.56 to US$60.67, respectively.
A possible reason for the decline in the spread in these significant bunkering ports could be the state of VLSFO oversupply in both hubs. Today, 6 August, both of the daily indexes have narrowed to the same level again, US$50.
As a result of the continued comparatively low spread, Yara Marine Technologies, one of the major players in the marine scrubber segment, has announced it is shifting its focus to other technologies. Yara believes the business case for exhaust gas cleaning systems has declined as a result of the pandemic. Yara is one of the, so-called, ‘big three’ (Wartsila, Alfa Laval and Yara Marine) which held around 75% of the entire scrubber market in 2018.
Meanwhile, cuts by OPEC+ combined with sanctions on Venezuela and Iran, have hit supplies of heavier crude, forcing processors in the US and India to boost the buying of high-sulphur fuel oil to use as an alternative feedstock in their refineries.
The recent demand surge also coincided with a seasonal boost from the Middle East, which imports fuel oil for use in electricity generation during the hotter summer months. This trend can form an upward driver for 380 HSFO in the short term.
Market uncertainty persists. MABUX believes that the direction of travel for market demand remains highly uncertain in the immediate term, raising more doubts for the medium and long term as well. As a result bunker prices are expected to continue to consolidate around the current levels.