VLSFO to HSFO price differential continues to rise

At the beginning of 2020 the shipping industry was perhaps a mite overconfident in thinking that the major development it would face that year would be the introduction of “IMO 2020”, the long-anticipated reduction in sulphur limits worldwide from 3.5% to 0.5%, and its implications for shipping.

That belief was rapidly dispelled as soon as March 2020, when Covid-19 took hold as a near-global pandemic.

However, the rule change did not go away, and neither did the conundrum faced by ocean-going shipping worldwide; whether to pay extra for the 0.50% very low sulphur fuel oil (VLSFO) or whether to install “scrubbers” that would enable ships to continue using HSFO. The decision, of course, depended on how much extra they would have to pay for VLSFO. The greater the differential, the shorter the payback time on the cost of installing the scrubber.

In recent weeks it has begun to look as if those who managed to get scrubbers installed will be heading into the black sooner than they had anticipated and possibly sooner than they had hoped. VLSFO prices in Rotterdam last week had reached $965 per ton, while in Singapore it was $1,149 per ton.

Meanwhile, the price of HSFO was falling back, with prices ranging from $332 per ton in Rotterdam to $538.50 per ton in Singapore.

Lars Jensen of liner consultancy Vespucci Maritime, a frequent poster on LinkedIn, observed that immediately pre IMO 2020 the IFO380 (i.e. HSFO) average fuel price was $433 per ton. Today the premium for VLSFO is equal to the level of the full fuel price prior to IMO2020.

Meanwhile, FOBAS, the fuel testing unit of classification society Lloyd’s Register, has issuing a warning that a number of VLSFO samples from Singapore had exceeded the 0.5% limit for water, with the fuels in question found to have water ranging between 0.65% to 1.9%. It said that “any carry-over of water into the engine fuel rail has potential to cause damage to the fuel pumps, injectors and cylinder components as well as possible turbo charger surging and fouling”.