Singapore cash premiums are at record highs (September/October hit over $40 and physical premiums are still over $70) so for this week’s column we’ve switched our focus to Rotterdam which is a ‘steadier’ market for implying 2020 values.
Spot 0.5% FO levels look balanced, sitting $213 above 3.5% FO and $49 below MGO producing a 19/81% blend margin.
Carrying that blend forward to Q1 gives a slightly larger differential to 3.5% FO of $234.
The big question is whether 2020 fuel will anchor off 3.5% FO (after all, it is a fuel) or MGO (the other option for any shipowner without a scrubber). The futures market would suggest the former.
Why is it important what 0.5% FO anchors off?
As MGO versus 3.5% FO widens into 2020, there could be large implications on time charter rates between owners with scrubbers and those without.
Scrubber advocates will expect (or hope) that 3.5% FO premiums fall as demand drops off towards 2020, but we wonder – will suppliers still stock a product that has had 80% of its demand disappear? One thing is for sure, volumes of 3.5% FO traded will be significantly lower, and thin volumes lead to volatile markets. Don’t expect the ‘hi5’ to stay consistent throughout next year.
Elsewhere, global oil markets are rising as trade talks between the US and China are expected to start. Front month Brent is up nearly $4 per barrel since Tuesday – potentially wiping out voyage profits for any unhedged operators.