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Background

In the past couple of weeks we have seen VLSFO prices fall by around $75/mt in Singapore (down 10%), but at the same time HSFO prices have remained within a $20 range.  The story is the same in Rotterdam, where the VLSFO price fall is slightly bigger than Singapore.  In this report we look at what is driving these VLSFO and HSFO price movements and where things could go in the near term.

Source: Integr8 Fuels

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Background to the IEA study

The IEA has just released its annual World Energy Outlook and for the first time it shows total demand for fossil fuels going into decline within the next few years in all of three of their forecast scenarios. The shift in outlook comes with the current energy crisis, high prices and the question of energy security, all principally triggered by the Russian invasion of Ukraine, but also prompted by under-investment in recent years.

The IEA study is based on three scenarios:

• Stated Policies, where the future outlook for demand across all energy sectors is based on current stated government and corporate policies to reduce emissions and that these are achieved. Here total oil demand would start to fall in the mid-2030s, but this would still mean a rise in global average temperatures of 2.5^oC by 2100 (way above the 1.5^oC by 2050)

• Announced Pledges, where policies that have been announced are actually enacted and fulfilled. This is the case where it is easy to say something, but far more difficult to implement it!  Here total oil demand would start to decline in the next few years, with a temperature rise of 1.7^oC by 2100;

• Net Zero by 2050, where new, and far more aggressive policies will be adopted to achieve net zero emissions by 2050, and temperature targets of a 1.5^oC rise by 2050 are achieved. In this case oil demand will decline from now on.

In the step from case to case, the outlook is of more rapid government strategies to quicken the pace towards ‘more sustainable and secure energy systems’.  The central theme here is renewable energy supported by nuclear power, with huge investments in existing technologies and the search for new technologies.

In this report we focus on what these views could mean for the bunker sector, in terms of prices and, importantly, the fuel mix.  It is worth noting that hydrogen-based fuels get a big mention in the study.

What is the outlook for oil and bunker prices?

The IEA’s forecast is based on trends, but they do recognise the high degree of volatility in pricing at different times.  However, the extent of their scenarios does show a very broad range in pricing, with the ‘current course’ under the Stated Policies case taking crude prices (in real terms) only slightly lower than recent levels and remaining in the $80-95/bbl range for Brent.

Source: Integr8 Fuels

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