In the beginning of the year, the bunkering market started adapting to the new IMO sulphur cap reduced to 0.50%. The price of popular fuels, MGO and VLSFO, was relentlessly growing throughout January. The growth was driven by all factors reflecting the new regime including fuel deficit in the regions and failure compliant fuels to meet the international quality standards. However, the market situation normalized by mid-February with prices having stabilized and Russian ports having continued their normal operation. However, the spread of coronavirus and collapse of OPEC+ agreement in late February disrupted the market balance again.
Global environmental restrictions and their first outcomes
Since the Baltic Sea area has been a SECA with 0.1-pct sulphur content limit from 2015, the new sulphur cap of 0.5% is painless here as we covered earlier >>>>
In southern ports, they use low-sulphur fuel oil with heavy fuel oil being used for blending which entals no problems for bunkering companies or ship owners.
It is the Far East that proved be the most vulnerable region with its seasonal congestion on railways and cases of low quality fuel supplies. In that context, Vladivostok hosted a meeting on application of the new IMO sulphur cap in the Far East port of Russia. The meeting headed by Aleksandr Poshivay, head of Federal Marine and River Transport Agency (Rosmorrechflot) acknowledged the market situation to be satisfactory in terms of availability and quality of fuel, one of the participants told IAA PortNews.
Representatives of Russian and international shipping companies involved in the meeting commented that the product delivered from the refineries is of higher quality as compared with the bended one.
It should be noted that more and more companies undertake technological modernization of their refineries for production of the IMO compliant fuel.
Gazprom Neft’s Omsk Refinery has been producing MARPOL compliant marine fuel with sulphur content below 0.5% from January 2020. The company says its total supplies of low-sulphur marine fuel to the domestic market of Russia may exceed 1.5 million tonnes in 2020.
The international statistics also demonstrates positive dynamics in sales of low-sulphur fuel. Bunker sales at the port of Singapore in January-February 2019 grew by 5.1% Y-o-Y to 8.39 million tonnes. According to official data from the Maritime and Port Authority of Singapore (MPA), sales of LSFO 380cst totaled 4.1 million tonnes (no sales last year), LSFO 100cst – grew 23.5 times to 1.4 million tonnes.
The beginning of 2020 was also marked by an outbreak of COVID-2019. From January 1 of this year, oil prices have plunged over 50%. On March 17, Brent crude futures fell below $25, for the first time from May 2003.
The collapse of ОПЕК+ agreement which was intended for cutting oil production to support prices amid the spread of coronavirus, has just aggravated the difficult situation in the world.
Saudi Arabia announced its plans to boost oil production to 13 million barrels per day. Besides, there is information that Russian companies can also raise crude output after the current OPEC+ cut deal expires on 1 April 2020.
The price was between Russia and Saudi Arabia results in the highest excess of supply in the oil market.
The panic in the mineral commodity market has, in its turn, lead to the slump of prices in the global bunkering market. The price of marine fuel in Russian ports has plunged by about 50%.
According to the analytical department of IAA PortNews, average MGO indications have dropped by over $200 from the year beginning. In the port of Saint-Petersburg it has decreased by -$260 to $310, in the port of Vladivostok – by $160 to $480, in the port of Novorossiysk – by $200 to $425.
In this situation, Russian bunkering companies have to fix fuel prices despite the long decrease of global oil prices not to go into the red.
Foreign ports continue responding to oil market changes with fuel prices falling to a fresh low. As of today, MGO in Singapore is cheaper than in Vladivostok by $115 pmt, MGO in Rotterdam is cheaper than in Saint-Petersburg by $30 per tonne. In view of the global price situation, many foreign ship owners are expected to plan their calls not in favour of Russian ports.
The implications on the bunkering market of Russia will be only clear after summing up of quarter results. Russia’s bunkering market was preparing for environmental challenges of 2020 together with the rest of the world but it was not ready for the record low of the oil market. Neither were other countries.