Rising Prices Show Tighter Supplies of Cleaner Fuel for Global Shipping

by Stephanie Kelly, Collin Eaton (Reuters) The price of very low-sulfur fuel oil (VLSFO) has risen in recent months, a sign of increasing worry there is not enough of the fuel to comply with new global shipping laws that took effect this year, market participants said.

VLSFO has lately started to trade at levels comparable with marine gasoil, a type of diesel fuel used by tankers.

That is an indication that refineries may need to increase production of VLSFO as tankers shift from dirtier, high-sulfur fuel to a cleaner product to comply with International Maritime Organization regulations designed to reduce smog.

Under those rules, shippers either need to use fuels with a sulfur content not exceeding 0.5%, or install scrubbers that can clean higher-sulfur fuels to reduce emissions. The rules, known as IMO 2020, affect more than 50,000 merchant ships worldwide.

Supply has tightened in trading markets in Asia and Europe and now in the United States. On Wednesday, VLSFO in Houston traded at $642 per tonne, compared with $667 per tonne for marine gasoil, S&P Global Platts data showed. That $25 spread was at $152 half a year ago.

This suggests not enough VLSFO is being produced and raises concerns about supply this coming spring when refiners go into maintenance season, said Rick Joswick, head of oil pricing and trade flow analytics at S&P Global Platts in New York. READ MORE