Shippers were spared the worst impacts of the introduction of new low-sulphur fuel regulations last year due to a collapse in the price of oil following the outbreak of the coronavirus pandemic.
But as economic recovery continues and demand for oil returns alongside cuts by major oil producing countries such as Saudi Arabia, bunker prices are on the rise again.
After a dramatic fall in March and April that brought down the price of both heavy fuel oil and very low sulphur fuel oil, and all but obliterated the spread between the two fuels, bunker prices increased and stabilised at a level of around $290 per tonne for IFO380 and around $340 per tonne for VLSFO.
“This level was quite stable for the period June to early November. However, since then, the fuel price has begun to increase significantly,” Sea-Intelligence said.
VLSFO increased 35% from November 1 to January 8.
Due to the varying way carriers implement bunker adjustment factors, either quarterly or monthly, there will be a delay before the impact of higher prices are felt by shippers.
“When the adjustment is made monthly, it is usually based on the monthly average fuel price, with a two-month time lag,” the analyst said. “Some carriers make quarterly adjustments, which in practice often means that, for example, second-quarter bunker adjustment factors that are applicable in April-June would be based on the average fuel price in December-February.”
The result was that although oil prices have begun to rise again already, bunker adjustment factors in place are based on earlier lower prices. The prices on which bafs are calculated for the second quarter, however, have increased significantly.
As well as an increased overall fuel cost, carriers also face a larger spread between high- and low-sulphur fuel again, swinging the balance back in favour of those who have invested in scrubbers.
“Following the initial spike driven by implementation bottlenecks for IMO2020, the premium [for VLSFO] fairly quickly stabilised around $50 per tonne for a period of nine months,” Sea-Intelligence said. “However, from mid-November we now see a significant continued increase, and the low-sulphur premium is now at $86 per tonne.”
This means that carriers will see an improvement in the relative value of the scrubber installations, allowing them to use cheaper high-sulphur fuel.
“But it also means that we might begin to see a rekindling of the discussion as to whether bunker adjustment factor formulas should take the scrubber-enabled vessels into account, especially on the Asia-Europe trade, where many vessels have had scrubbers installed.”
Source: Lloyds Loading List