Singapore LSMGO-LSFO spread doubles in 2 weeks as demand swings back to LSFO

Singapore — The spread between Singapore delivered low sulfur marine gasoil and low sulfur fuel oil more than doubled to average $10/mt last week from $4.60/mt over February 1-7 as buyers increasingly switched back to LSFO amid an increase in availability, S&P Global Platts data showed Monday.

The spread between the two grades narrowed in January when shipowners actively stockpiled LSFO due to the International Maritime Organization's 0.5% global sulfur cap on bunker fuels kicking in from January 1, tightening supply and limiting barge availability. This prompted a number of shipowners to switch to LSMGO, which is typically more expensive than LSFO, as an alternative compliant fuel as the price spread between the two grades narrowed.

However, with China's seasonal demand lull in February this year exacerbated by the impact of the coronavirus outbreak on transportation, the increasing availability of LSFO has seen prices plummet in the month, clawing back demand from LSMGO -- and LSMGO prices have fallen in tandem as a result.

Singapore delivered marine fuel 0.5% bunker was assessed at $495/mt Friday, down $245/mt or 33% from a record high of $740/mt on January 6.

Singapore delivered low sulfur marine gasoil 0.1% bunker was assessed at $505/mt, down $240/mt or 33.2% from a record high of $745/mt the same day.

"In December, even if I wanted to pay for LSFO, I couldn't get any, so I had to stock up on LSMGO instead," a shipowner said.

As a result, LSMGO sales surged 94.3% year on year to a record high 445,900 mt in January, Maritime and Port Authority of Singapore data showed. This compares with 211,000 mt of LSFO sold in the month, MPA data showed.

However, market sources said LSMGO sales were cooling in February as the price of LSFO falls.

"The whole bunker fuel market is weak and now prices of LSFO have weakened against LSMGO, so vessels will definitely take LSFO," a bunker supplier said.

A shipowner said: "Even if prices are at similar levels, I would choose to take LSFO instead of LSMGO because it's more fuel efficient."