How bunker markets changed in 2020

Aug 10 2021


There were many changes to bunker markets in 2020, including effects of COVID-19, IMO 2020 low sulphur rules, and the the withdrawal of many large banks from bunker financing. And we may see price rises this year. Søren Høll, CEO of KPI OceanConnect shares his views.

In 2020 we saw a major disruption from the compound effects of Covid-19 and IMO 2020.

 

For bunkering hubs in some oil export regions, such as Fujairah, the decline in the number of tankers arriving to load crude cargoes had a noticeable impact on total bunker sales.

 

This was especially visible when OPEC+ flooded the market with crude in Q1 and Q2, and large parts of the fleet were used as floating storage.

 

By comparison, Singapore and Rotterdam’s total bunker volumes were up considerably year-on-year.

 

IMO 2020 fuels

For the most part, we saw plenty of IMO 2020 compliant fuels.

 

In smaller markets, procuring compliant products has often been challenging. But shortages have been very rare in the major hubs.

 

Oversupply and depressed global demand have so far helped mitigate many of the supply and quality issues that were widely expected to challenge bunkering last year.

 

While there have been fewer quality issues than many analysts predicted, this may have been partially masked by the pandemic and the depressed oil price.

 

However, demand for distillates that are currently being used in VLSFO will rise.

 

There are likely to be more challenges ahead, and some of the issues on quality and availability that sparked concerns in 2019 may rear their head.

 

The global sulphur cap has created an inherently more complex marine fuels landscape.

 

Safety, compatibility, and compliance have become more interlinked than ever before. Finding the right fuel, at the right time, for the right vessel has become substantially more challenging outside the major hubs.

 

Price is still key, but there is now more to consider than simply the basic cost of the fuel.

 

Withdrawal of large banks

The biggest change that we’ve seen in the last 18 months has been the withdrawal of many large banks from the commodity trade. This has included ABN AMRO, Rabobank and BNP Paribas.

 

This is in light of losses they’ve suffered in recent years from the financial malpractice of certain unscrupulous marine fuels players.

 

They seek to cut their exposure to cyclical markets in light of increased regulation, greater capital requirements.

 

With their departure, the bunker industry has seen a major decline in capital availability to all but the strongest players.

 

This has created additional costs, and liquidity and transactional complexities for shipowners.

 

A perception of lenient corporate governance further inhibits banks from lending to the sector.

 

Forensic due diligence has become far more common.

 

2021 cost rises?

We’re expecting to see crude oil price rise this year, which will inevitably lead to higher bunker prices as a consequence.

 

Several financial institutions have already predicted this, and with the huge volatility in bunker prices last year, we’re already seeing prices gradually rise.

 

VLSFO, for example, dropped to $150 per tonne in May 2020, but has since risen to the $500s.

 

When costs are higher, there’s a greater incentive to squeeze value from blends.

 

Unfortunately, this can often result in unscrupulous suppliers using cheaper or less suitable feedstocks that can have a catastrophic impact on ships’ safety.

 

As we continue to endure price volatility in the immediate, if not long term, hedging and risk management are becoming even more important for shipowners.

 

Reduced volatility lowers their cost of capital, while knowing there will be no abrupt cost rises enables them to plan ahead and futureproof their liquidity.

 



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