Narrowing for Houston, Panama 0.5pc resid-0.1pc MGO

A narrowing discount between 0.5pc sulphur residual fuel oil and 0.1pc sulphur marine gasoil (MGO) in both Houston and Panama may be due to fewer 0.5pc resid availabilities as demand for it rises.

The 0.5pc resid discount to 0.1pc MGO reached $61.10/t in Houston and $31.05/t in Panama in the first half of November, down from $74.50/t and $46/t respectively in October.

The number of sellers of 0.5pc sulpher resid in the two markets is relatively small, leading to less competition and higher prices. In Houston 0.5pc sulphur fuel oil is currently sold by just Vitol, Bomin, Bunker One and GCC Bunkers, but Valero, Shell and Nustar may soon join in. There are more than ten suppliers of MGO in Panama, but only four that are currently offering 0.5pc sulphur residual fuel oil: Bomin, Monjasa, Peninsula and Triton.

Buying interest for 0.5pc sulphur residual fuel oil has been high, especially from bigger vessels such as VLCCs, which consume more marine fuel. Even a narrow discount to MGO could make a big difference in the fuel expenses of big vessel operators. A VLCC can take around 10,000t of marine fuel, but typically takes clips of about 3,500t, of which it burns about 100t per day. Even at the narrow 0.5pc sulphur fuel oil–MGO discount of $31.05/t in Panama, a shipowner can save $108,675 by fueling with 3,500t of 0.5pc sulphur fuel oil instead of fueling with MGO.

A shipowner noted that 0.5pc sulphur fuel oil procured on a contract basis often enjoys bigger discounts compared with 0.5pc sulphur fuel oil bought in the highly volatile spot market. The contract versus spot discount is especially wide in the US Gulf, northwest Europe and the Mediterranean, and can be around $26-$31/t. The contract–spot discount is narrower in Singapore, where the bunker market is more transparent, the shipowner said.

Not all shipowners have taken the 0.5pc sulphur residual fuel oil route. Some have gravitated towards buying the more expensive MGO because they prefer the peace of mind of burning a proven fuel grade with no compatibility issues. With the International Maritime Organization's new rules for 0.5pc sulphur vessel fuels pending for 1 January, one US Gulf MGO supplier saw a 20pc increase in MGO inquiries and a 20-30pc increase in the average size of the inquiries. Historically US Gulf MGO lots range in size at around 100-500t.

But there have been several new suppliers entering the US Gulf market and offering 10ppm sulphur MGO (or ultra-low sulphur MGO) thus driving down the profit margins for 10ppm MGO for the existing suppliers.

source: Argus Media