12.05.2020

Maritime market update: High fuel oil stock levels pose a challenge for IMO 2020 compliant fuels

The Risavika LNG price index is down by 1 % week on week. European gas markets continue to be influenced by high supply, both from pipeline gas and by liquefied natural gas (LNG) imports. However, this week’s prices are likely to be supported by lower temperatures across the continent and easing lockdowns across the Europe.

The oil market was rallying last week on the oil production cuts and easing lockdowns. However, the rally was limited by the sentiment of the potential second wave of coronavirus in Asia and new US-China tensions.  The fuel oil prices (FO 3.5) front month closed at 147.68  USD/t last week, 20 % higher than previous week, while Low Sulphur (MFO 0.5) has gained 12 % compared to previous week. The fuel oil stocks rose by 9 % over the past week to record levels of 1.745 m tonnes, from 1.604 m tonnes in previous week. The Amsterdam-Rotterdam-Antwerpen (ARA) fuel oil storage utilization rose to 87% of capacity.

The high stocks pose a challenge for International Maritime Organization (IMO) 2020 compliant fuels. A shelf life of 0.5 % fuel oil is only 2-3 months in most cases. According to Argus Media, Veritas Petroleum Services reported that 0.5 % fuel oils can become unstable in less than three months, and when fuels become unstable, they may be beyond the point of recovery. Safe storage time depends on the asphaltenes and paraffinic content of fuel oils as well as levels of moisture and contaminants in the fuel. Contaminants can react with fuel and cause oxidation. Therefore, a thorough fuel quality monitoring should be done in order to prevent the fuel from deteriorating.

LNG Risavika - LNG FOB Risavika 

FO 3.5 FOB Rdam – European 3.5% Fuel Oil Barges FOB Rdam (Platts) Futures Quotes

MFO 0.5 FOB Rdam - European FOB Rdam Marine Fuel 0.5% Barges (Platts) Futures Quotes

MGO 0.1 FOB ARA - Gasoil 0.1% Barges FOB ARA (Platts) Futures Quotes

ULSD FOB ARA - European Diesel 10 ppm Barges FOB ARA (Platts) Futures Quotes

Source: CME Group, Gasum, Reuters, Argus Media

*An estimate for LNG FOB Risavika