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Singapore HSFO/marine fuel oil spreads touch fresh highs ahead of IMO 2020

Singapore — The spread between Singapore high sulfur and Marine 0.5% sulfur fuel oil for the prompt months have widened to fresh highs on Thursday, as fundamentals for the fuel oil industry adjust before the International Maritime Organization's sulfur mandate kicks in January 2020.

With the 0.5% sulfur cap on bunker fuels set by the IMO from next year, high sulfur fuel oil demand is expected to drop while low sulfur fuel oil demand is poised to pick up, said trade sources.

The October, November and December 2019 spreads for Marine 0.5% FOB Singapore/380 CST high sulfur fuel oil Singapore swap touched its highest at $167/mt, $187/mt and $201/mt respectively as of 4:30 pm Singapore time (0830 GMT) Thursday, since the launch of MF 0.5% derivative contracts on the Intercontinental Exchange earlier this year, data from S&P Global Platts showed.

"Nobody wants to sell [low sulfur cargoes] cheap, [the high MF 0.5%-380CST HSFO December spread] is from the expectation that the cargo differential will be very wide," said a Singapore-based trader.

In comparison, shipowners had earlier expected the premium for low sulfur cargoes to range around $150/mt.

The spread between Marine 0.5% FOB Singapore/380 CST HSFO Singapore swap for December 2019 was bid and offered at $200/mt and $203.75/mt respectively on ICE as of 0230 GMT Friday in Singapore.

"The spread to 380 CST HSFO will widen as we step into Q4 2019, but then again it will depend on crude prices then as well," said another Singapore trading source.

"More clarity for MF 0.5% sulfur oil will emerge down the curve as we get closer to 2020, " the source added.

On the physical front, traders said most floating storage units in Singapore were holding low sulfur fuel oil or crude oil cargoes suited for blending into IMO 2020 compliant low sulfur fuel oil, and another 1 million mt was in landed storage.

"I think in excess of 19 VLCCs are storing low sulfur fuel oil [in the Singapore region]," said a Singapore-based trader.

Market sources said low sulfur fuel oil was expected to be shipped to Singapore from US Atlantic Coast before as part of the preparation for IMO 2020, and the ULCC Oceania was fixed from Rotterdam to land in Singapore at the end of September, carrying parcels of IMO 2020 compliant fuel and crude.

The spot differential for the FOB Singapore MF 0.5% cargo was assessed higher by $5/mt day on day to MOPS minus $15.50/mt Thursday, showed Platts data.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Wanda Wang, wanda.wang@spglobal.com

--Edited by Nurul Darni, nurul.indriani.darni@spglobal.com

Turning tides: The future of fuel oil after IMO 2020

This report provides a thorough introduction to the IMO's sulfur cap on marine fuel, its impact on markets and what to expect from the new regulatory framework.

Download the report