Singapore stocks up on low-sulfur fuel ahead of new rules
Oil traders are chartering more ships and snapping up fuel oil storage tanks in and around Singapore, the world’s top bunkering port, to stock up cleaner fuel that will meet new shipping rules coming into force next year, industry sources said.
The move has pushed up lease rates for tank storage in Singapore and increased the number of supertankers floating in Singapore and Malaysian waters as traders store fuel months ahead, betting on a spike in prices for low-sulfur fuel oil (LSFO).
Under new International Maritime Organization rules aimed at curbing pollution, ships have to reduce the sulfur content of the fuel they burn to 0.5% from the current 3.5% from January 2020.
Storage tank rates for crude and fuel oil have risen nearly 20 percent since the start of the year to about S$5.00 to S$5.50 ($3.68 to $4.05) per cubic meter for a lease period of 6 to 12 months.
This compares with rates of about S$4.50 per cubic meter late last year to early this year, the sources said.
“Since April, the demand for low sulfur fuel oil has just gone up and our tanks are fully leased now,” said a source with a Singapore-based storage operator, declining to be named as they were not authorized to speak with media.
Three other storage operators also said their LSFO tanks were fully leased.
Companies storing the fuel on landed tanks include oil majors Exxon Mobil Corp, Chevron, BP, Repsol, Mitsui and Petrobras as well as commodity trader Petro Summit, they said. Companies typically do not comment on commercial matters.
Over the past two years, storage operators had been forced to reduce tank rates as some energy traders did not renew contracts or cut the amount of oil held in storage.
But the expected price rise for LSFO is boosting storage take-up. LSFO is currently priced off existing fuel oils, but will most likely be priced off more expensive marine gasoil, the nearest low-sulfur substitute, when the new rules kick in, said a Singapore-based trader.
“People are buying LSFO now on a fuel oil related basis, and they can sell it in 4Q 2019 or 1Q 2020 on a gasoil basis,” the trader said.
LSFO is being produced by blending with high sulfur fuel oil (HSFO), while refineries in Taiwan, South Korea some regions outside of Asia have also started producing LSFO.
The rules come into force on Jan. 1, but demand is expected to grow in coming months as shippers start testing new product and suppliers switch over stocks. Singapore sales of low-sulfur marine fuels hit a record high in June.
Onshore storage space is particularly constrained as traders and storage operators are clearing out tanks as they convert HSFO storage space to LSFO, the sources added.
At least one operator is considering switching its clean tank for high-grade fuels to store fuel oil — an expensive process to reverse — provided it can sign a five-year commitment, a source familiar with the matter said.
The lack of space on onshore tanks, along with technical storage issues, has also prompted traders to store the oil product on very large crude carriers (VLCCs) off Singapore and Malaysia.
“There are about 14 VLCCs storing fuel oil in Singapore, based on our records …(I) would expect to see greater volumes and more vessels added to the region in the next few months as Jan 2020 approaches,” said Serena Huang, senior market analyst at oil analytics firm Vortexa.
Traders and shipbrokers estimated there are at least 10 to 15 VLCCs storing LSFO and its blending components with another handful of similar-sized tankers storing a mix of LSFO and HSFO in their tanks.