New mixes emerge as shipping fuel of choice ahead of IMO 2020

[December 23, 2019]    LONDON/SINGAPORE (Reuters) - With a week until the implementation of International Maritime Organization (IMO) rules that will slash the permitted level of sulfur in marine fuels, shippers appear to be favoring very low-sulfur fuel oil (VLSFO) mixes over distillate fuels.

Shipping vessels and oil tankers line up on the eastern coast of Singapore in this July 22, 2015. REUTERS/Edgar Su/File Photo

The price differential between VLSFO and marine gasoil has narrowed sharply at various major port locations around the world in recent weeks.

The IMO 2020 rules lower the ceiling on sulfur in ship fuel to 0.5% sulfur unless they are equipped with exhaust-cleaning systems known as scrubbers, down from 3.5% currently.

In Singapore, the world's largest bunkering port, the difference in price between VLSFO and marine gasoil, a distillate-based fuel that also satisfies the new sulfur requirement, was at near parity late last week, around $650 a tonne, according to S&P Global Platts assessments.

This compares with $75 a tonne in early September.

(GRAPHIC: Global Marine Fuel Prices - https://fingfx.thomsonreuters.com/
gfx/editorcharts/OIL-SHIPPING/0H001QXRHB2E/eikon.png)

(GRAPHIC: Houston Marine Fuel Prices - https://fingfx.thomsonreuters.com/
gfx/editorcharts/OIL-SHIPPING/0H001QXRJB2H/eikon.png)

"Shipowners have shown a clear preference for VLSFO-type fuels over MGO, probably due to viscosity and other factors, so the rise in VLSFO relative to diesel effectively permits blending a wider range of heavy components into VLSFO blends," Robert Campbell, head of oil products at consultancy Energy Aspects said.

Some shipowners and operators, especially those with larger ships, strongly prefer VLSFO over MGO because of technical issues related to running on distillate fuel as opposed to heavy fuels.

"The biggest nightmare for a shipping company is having a large ship with engine failure drifting at sea in stormy weather," Nordic bank SEB said in a note.

(Reporting by Ahmad Ghaddar, Ron Bousso and Julia Payne in London and Roslan Khasawneh in Singapore)

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