Sunday, 28 February 2021 | 06:23
SPONSORS
View by:

Vaccines get freight moving again – Outlook for oil and shipping

Tuesday, 23 February 2021 | 13:00

As COVID-19 vaccines are rolled out across the globe, trade will move back towards pre-pandemic levels and have an impact on the oil and shipping markets. Below is a transcript from a recent webinar.

Featured speakers:

Alok Sharma, Senior Vice President, Inatech, a unit of Glencore
Seva Tkachenko, Commercial Manager at Arte Bunkering
George Griffiths, Editor of Global Container Freight Market, Dry Bulk Shipping, S&P Global Platts
Tamara Sleiman, Managing Editor, EMEA Residual Fuel Oil, S&P Global Platts

Poll:

Based on your experience, how much do you think 0.50% sulphur marine fuel will cost at major ports at the end of Q1?

$450-500/mt 34%
$501-550/mt 46%
$551-600/mt 20%
Above $600/mt 0%
*Results based on votes from participants in the webinar.

Discussion:

What is the new normal?

Alok Sharma: While the airlines, as big consumers of energy, are near halted, crude oil is pretty much near to where it was this time last year. This good news is almost exclusively driven by vaccine approvals and the hope is that this will bring about an uplift in demand.

But there is also major fallout: tourism is down $2.1 trillion, airlines are down over $300 billion, shipping is down over $2 billion. And it’s estimated that this income is lost forever; it can’t be recovered, even if economies bounce back. So what is the new normal?

Oil demand in 2020 was at the same level as it was in 2013, so that’s seven years of growth destroyed. But an array of vaccines are creating hopes that the worst effects of the pandemic will begin to recede by the middle of the year.

The International Energy Agency’s demand forecast for 2021 shows a huge jump of 3 billion barrels in oil consumption between the second and the third quarters of the year. This is twice the size of any increase we have ever seen. But the immediate future is rather uncertain.

Has the post-pandemic recovery started?

Seva Tkachenko: Last year, we saw a return of volumes similar to Q1 and Q2 levels at the very end of Q3 2020. However, the geographical distribution of those volumes was different, with the volumes in Asian ports being on the rise. Our understanding is that this is also the experience of many of our peers.

With regards to the margins, those definitely have been hit compared to Q4 of 2019 and Q1 and Q2 of 2020, which, in all honesty, were somewhat on the higher side compared to all of 2019. I would attribute this to increased competition on a somewhat lower market in terms of volume.

Also, financing for trading companies and suppliers is as relevant as ever and will be one of the challenges going forward, given the casualties that the market has suffered. Unfortunately. the bunkering industry does not have a good perception from traditional lenders.

All in all, and looking at our sales, from Q4 2020 onwards, we see the market as definitely picking up with, again, Asian ports on the rise and players entering the market in prospective ports, making them more attractive to supply.

What are shipping volumes and rates telling us?

George Griffiths: In the container market, at the start of the pandemic last year, volumes went right down; the Chinese market never really returned from Chinese New Year. We are now at Lunar New Year again and we’ve seen an enormous increase in the volumes both imported and exported to and from the US.

These high volumes of trade have been unprecedented and the shipping liners haven’t been able to deal with this influx and it has caused enormous bottlenecks around the world.

On the Asia to Europe trade, freight rates at the end of November were around $2,000 to move a 40ft container from China to the UK. By the start of this year, we were at $10,000: a five-fold increase over the course of about four weeks. This is typical of what’s going on in the market at the moment.

Last year, everyone thought COVID will go away and the world will go back to normal. But in Q4, we saw a further surge in COVID cases and this has caused some real bottlenecks around the world for the container liners.

In dry bulk, one of the key trades is for 60,000-tonne grain cargoes from Santos in Brazil, to Qingdao in China. Rates are slightly higher than at this time last year but the differential between a scrubber-fitted vessel, using 3.5% sulphur fuel, and a non-scrubber-fitted vessel using 0.50% fuel has reduced.

In early 2020, this spread was enough to pay off the investment in two or three years. Now, we’re not seeing the benefits that perhaps those who installed scrubbers were hoping for. That’s a real issue. But in general, the dry bulk sector is coming back with a vengeance.

In the tanker market, there were spikes early in the pandemic for both clean and dirty tankers as a result of floating storage when everybody wanted to store their oil. But now, rates for dirty tankers are below fixed operational costs, despite rising oil costs. This is due to the backwardated nature of the oil price: it looks like it’s going to get cheaper in the future, so why would you store it?

And although crude is at pre-COVID price levels, there is no demand from airlines so production cuts have been in place, resulting in significantly fewer cargoes in the market. So, as a result, we’re seeing rates for both clean and dirty tankers significantly suppressed, compared to what we would expect in this sort of upcycle in the oil world.

How have the fuel markets reacted to COVID?

Tamara Sleiman: Global fuel oil markets weathered rough waters in 2020, thanks to the monumental change represented by IMO 2020 and the demand destruction on the back of the coronavirus pandemic. Demand for 0.50% sulphur marine fuel skyrocketed at the start of the year and we saw record high prices. But the rise was short lived and marine fuel markets came under significant pressure in February as the COVID-19 crisis intensified.

Global Hi-5 spreads – the price difference between 0.50% and 3.5% fuel oil – had all-time highs of $320/tonne within the first week of January 2020 but following the widespread impact of COVID-19 on oil markets this spread plunged to $38 in June, the lowest level since Platts started assessing this product. Marine fuel prices were also impacted by falling crude prices.

Demand for jet fuel. gasoline and diesel came under significant pressure amid national lockdowns, which pushed refineries to reduce their runs and limit yields of light-end products. These reduced runs supported fuel oil prices, as it limited the production of residual based fuels.

By the end of September 2020, 0.5% marine Brent crack was priced higher than all other transportation fuels in Europe, which is quite unexpected for a residual based fuel. This strength continued into 2021 as marine fuel was largely supported by demand from Singapore and the surrounding region.

In January 2021, 0.50% marine fuel Brent crack averaged about $8 per barrel. This marks a significant recovery compared with around $0.30 per barrel in April 2020.

Prices for 3.5% fuel oil were expected to fall off a cliff after IMO 2020 but have showed resilience and enjoyed steady margins last year. High-sulphur fuel represented 28% of total demand in Rotterdam’s bunker sales in 2020 and 34% in the fourth quarter. The relative strength we’re seeing in high sulphur fuel is supported by reduced refinery runs and power generation demand from countries such as Saudi Arabia.

Looking ahead, according to Platts Analytics fuel oil demand is expected to recover significantly in 2021 because market players anticipate a stronger year as the rollout of vaccine programmes will allow global activity to recover. Bunker fuel prices were pushed upwards by the recovery in Brent, which is now trading above $60 a barrel and crude markets are looking to head into 2021 in pursuit of a full recovery.

One of the main drivers behind bullish sentiment for 3.5% sulphur fuel in 2021 is the expectation of increased demand for scrubbers. New scrubber installations are expected to rise from 18% of the global fleet in 2020 to 28% in 2025. And in December 2021 vessels with scrubbers are likely to account for over 1M barrels per day of 3.5% sulphur fuel oil demand.
Source: Inatech

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping
Next article
Back to list
Previous article

Newer news items:

Older news items:

Comments
SPONSORS

NEWSLETTER