The price spread between high and low sulphur fuel oil (HSFO and VLSFO) is at its lowest since the global sulphur cap began in early 2020. Currently, the Hi5 spread is about $67, reducing the premium earnings for scrubber-fitted ships.
Research from Braemar indicates that earning premiums for eco scrubber-fitted VLCCs have dropped to under $3,000 a day, down from $8,000 in February. This is largely due to increased HSFO margins, which have risen by nearly $10 per barrel in two months due to a scarcity of sour crude.
Fuel oil stocks in Singapore and Europe have been declining since the start of 2024. Disruptions in the Red Sea, caused by Houthi attacks, have forced ships to take longer routes, driving bunkering demand to a 19-month high.
In the port of Rotterdam, HSFO sales outpaced VLSFO for the first quarter of 2024, the first time since the sulphur cap was enforced. This is attributed to longer shipping routes avoiding the Red Sea.
A report from Integr8 Fuels highlights that geopolitical events can affect fuel quality, blending economics, and barge infrastructure. Since October 2023, more vessels are rerouting around Africa, increasing HSFO demand and causing a 30% rise in VLSFO sulphur off-specification incidents along the African coast and Spain.
The surge in HSFO demand is pressuring supply models, with over 100 million dwt of ships worldwide now equipped with scrubbers. Braemar warns that as the northern hemisphere approaches summer, the demand for fuel oil for utilities may further strain supply and increase bunker prices.
