It has been over a month since the IMO2020 regulation came into force and there are mixed views on how the transition has gone so far. Some participants claim the switch has gone smoothly, while others highlight the constant quality issues with the VLSFO blends.
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In our last research note in December we pointed out that the differential between quoted prices for MGO and VLSFO in Singapore had fallen from $75/ton to only $10/ ton over a couple of months. This squeeze in the MGO/VLSFO differential is now commonplace in all the main bunkering centres.
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We are clearly well into the IMO 2020 transition; changes in bunker infrastructure, availabilities and pricing are all having a major impact, posing challenges to bunker buyers and these are not going to go away quickly.
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For many years buying bunker fuel has mostly been about getting the best quoted price and avoiding quality issues. This is as topical today, particularly going into 2020.
Buying the best quoted price, however, does not necessarily mean buying the cheapest fuel. One fuel property that often gets overlooked is net calorific value (will simply refer to as calorific value going forward), which shows how much energy is produced by combusting the fuel.
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There will be a series of changes in bunker markets as we go through either side of the January 1st IMO 2020 implementation date, and recent price move- ments in HSFO is clear evidence the process is well underway.
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Overview
Compatibility of residual bunker fuels has always been relevant. Mixing fuels onboard is often considered bad practice, however it is generally unavoidable.
VLSFO’s sensitivity to mixing will likely result in more cases of incompatibility, affecting suppliers and owners alike.
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Recently pricing in the bunker market has been heavily disrupted, particularly in Singapore and Europe, because of logistical issues associated with switching over supply infrastructure to the new low sulphur fuels from HSFO. However, thus far, globally volumes sold and the proportion of volumes sold by fuel type, have remained relatively stable, except for Latin America.
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