October 15, 2014
The northwest European fuel oil Calendar 2015 hi-lo swap – the premium of 1% FOB NWE cargo swaps over 3.5% FOB Rotterdam barges – has hit a record low ahead of new rules next year that will limit bunker fuel sulfur levels in emission control areas to 0.1%.
The swap was assessed at $8.50/mt Monday, Platts data showed, having been on a downward trend since late May when it was at $22.50/mt.
Demand for low sulfur fuel oil was expected to tail off significantly from 2015.
On October 14th, the Calendar 2015 hi-lo traded several times at $8.75/mt, up 25 cents/mt day on day.
Refiners are aiming to produce less LSFO next year, and any residual material is likely to make its way in to the HSFO pool.
“The question is, how much?” a trader said.
The Calendar 2015/2016 FOB Rotterdam 3.5% sulfur swap time spread has moved to an 11.25/mt contango, in anticipation of the extra supply.
Next year, ships traveling within 200 miles of North America, the Baltic Sea, or the North Sea must limit sulfur emissions from fuel to 0.1%, down from 1%, according to International Maritime Organization rules.
Northwest European refineries are preparing for the changes by testing new specifications similar to 0.1% sulfur marine diesel grade, traders said.
One major oil company and two big Amsterdam-Rotterdam-Antwerp fuel oil suppliers are already offering the new product, priced at a $10-20/mt discount to gasoil, one European trader said.