Increasing prices indicate tight supply of cleaner fuel

This fact may be showing that refineries need to rise production of VLSFO, with tankers changing from high-sulphur fuel to cleaner fuels, in order to comply with the IMO sulphur cap.

What is more, supply has also tightened in trading markets in Asia and Europe and now in the US. Namely, this suggests that there is not enough VLSFO being produced, something that raises worries regarding supply this coming spring when refiners go into maintenance season, according to Rick Joswick, head of oil pricing and trade flow analytics at S&P Global Platts in New York.

Regarding spread narrows between marine gasoil and VLSFO globally, it has tightened as demand for VLSFO rises due to the new shipping rules.

However, Reuters adds that some shipowners and operators, and specifically those with larger ships, mainly prefer VLSFO over MGO due to technical issues regarding the use of distillate fuel as opposed to heavy fuels.

In addition, the spread between VLSFO and high-sulphur fuel used by shippers that are using scrubbers was greater than shipowners expected, benefiting tanker operators that chose this technology.

Finally, VLSFO demand could lead refiners to increase supplies later this year, noted Andy Lipow, president of Lipow Oil Associates in Houston.