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Fuel oil barge spread liquidity ticks up as IMO 2020 approaches

London — An uptick in bids and offers for 3.5% FOB Rotterdam barge spreads for the year of 2020 has been seen on the Intercontinental Exchange as market participants eye up the structure for when the International Maritime Organization's 2020 0.5% sulfur cap on bunker fuel comes into force.

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The increase in liquidity can largely be put down to the "approach of IMO I would think -- a greater need for liquidity at the back end of the curve," a trader said. "People need to trade 2020 plus to get their position in place ahead of the IMO [sulfur cap implementation]."

The 3.5% FOB Rotterdam barge November/December 2020 barge spread has been offered on ICE through September so far. On Wednesday however the Q2/Q3 2020 spread and January/April 2020 instruments were also active in the window.

The Q2/Q3 2020 spread was bid at minus $5/mt and offered at minus $4.25/mt at the close Wednesday, with a bid of minus $5.25/mt present on ICE late Thursday morning.

The January/April 2020 intermonth spread was bid at minus $3/mt at the close Wednesday, with a bid of minus $2.50/mt present on ICE late Thursday morning.

The trader said liquidity had likely picked up on ICE specifically due to its anonymity. Despite saving brokers fees when bidding and offering on ICE, there are some downsides to be aware of as there can often be wide bid/offer ranges and as a result it can be hard to get market value, the trader added.

As the January 1, 2020, deadline for the switch in the bunker fuel sulfur limit from 3.5% to 0.5% approaches, it is likely that over the next few months liquidity on the 2020 3.5% FOB Rotterdam barge spreads will increase further.

A second trader however did not see the uptick in liquidity as anything special just yet.

"[The spreads] have always traded, just now [there is] a bit more [interest]," the second trader said. "I would not say that it has been wild behavior."

--Emma Kettley, emma.kettley@spglobal.com

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com