IMO SULPHUR CONTENT: VLFSO,MGO Price Hit All Time High

With the coming into force of IMO 2020 very low sulphur fuel oil (VLFSO) prices have surged since mid-December nullifying the discount to marine gas oil (MGO).

While both VLSFO and MGO prices have climbed steadily over the last few weeks, rises have been higher for the former with the two types of fuel now trading at roughly equal prices.

In Singapore, the world’s largest bunkering port, price indications for VLSFO touched a high of $742 per metric tonne (pmt) on 6 January, up from $720 pmt a week ago and $581.50 pmt a month ago, according to data from Ship & Bunker.

Looking back further, Singapore VLSFO prices had remained relatively steady at around $520-550 pmt between July to November 2019 before a sudden hike from mid-December as the IMO 2020 deadline was approaching.

Singapore MGO prices, on the other hand, was seen at $745.50 pmt on 6 January, up from $702 pmt a week ago and $594 pmt a month ago. MGO prices have also been climbing swiftly to go past the $700-mark within a two-week period since mid-December.

“For the time being, the VLSFO to MGO discount has vanished in Singapore with both bunker fuels currently sold at around $700 pmt. With such a price convergence, the apparent advantage of VLSFO goes out the window,” observed Adrian Tolson, senior partner at consultancy firm 20|20 Marine Energy.

Tolson, however, pointed out that MGO will not remain cheaper than VLSFO, for logic maintains that VLSFO will get increasingly cheaper as more of the product becomes available and as more companies and barges start delivering it.

Bimco stated in a recent note: “Whatever the underlying cause, the price levels for VLSFO and MGO have risen respectively by 30% and 24% from start of December to the start of January. Such price increases are quite extraordinary for the low sulphur fuels, which have been trading at relatively stable levels throughout 2019, as opposed to the more volatile HSFO (high sulphur fuel oil).”

On the prices of HSFO, Tolson believes that bulk wholesale or contracted HSFO is expected to get cheaper in major ports. He noted that end of year bulk wholesale HSFO prices were $250 pmt in Rotterdam and $300 pmt in Singapore, and this will likely decrease once refinery inventory builds.