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European fuel oil Hi-5 spread up to triple digits on Eastern demand, output cuts

Highlights

European fuel oil Hi-5 spread highest since March 2020

VLSFO finds support on arbitrage east, limited availability

London — The European fuel oil Hi-5 spread has risen to triple digits for the first time since the end of March 2020, with low sulfur fuel oil supported by demand from the East and limited domestic production.

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The spread between 0.5% sulfur FOB Rotterdam barges and 3.5%S FOB Rotterdam Barges -- dubbed the Hi-5 -- widened to $100.50/mt Feb. 4, S&P Global Platts data showed, its highest level since March 31, when it was assessed at $104.75/mt.

In recent weeks, 0.5%S marine fuel has been buoyed by Eastern demand and reduced runs in Europe limiting availability, while 3.5%S fuel oil continues to see thin demand from the start of the year, sources said.

Similarly, the bunker fuel market continued to see a widening differential, with it hitting an 11-month high on Feb. 4 at $110/mt, Platts data showed.

VLSFO prices responded to strength in the Brent crude oil complex while HSFO prices had been somewhat stagnant, data showed, although demand had been reported as low in recent weeks, with some sources deterred by VLSFO's higher prices.

The Hi-5 spread has been under close scrutiny since the implementation of the International Maritime Organisation's stricter sulfur regulations in 2020.

Since the beginning of last year, ships can only burn 3.5%S HSFO if an exhaust gas cleaning system -- also known as a scrubber -- is installed. For ships without scrubbers, the sulfur cap was reduced from 3.5% to 0.5% on the high seas.

The Hi-5 spread, a key indicator of scrubber economics, has been weighed down since the start of the coronavirus pandemic, reaching its narrowest June 4 at $38/mt. Shortly after the implementation of IMO 2020, the spread reached its widest on Jan. 3, 2020 at $321.50/mt.

According to a report published by the IMO, over 2,350 'scrubber' systems have been reported to the organization globally.

In December 2021, scrubbers are likely to account for over 1 million b/d of 3.5%S FO, according to Platts Analytics.