0.00 0.00%



225.00 2.05%

Iron Ore


0.85 1.12%

Sing 380



Coking Coal


0.00 0.00%

Nola Urea


0.00 0.00%

2020 sulfur cap brings early Christmas present for fuel buyers

Shipowners faced with the rising cost of compliance with environmental regulation could be taking advantage of discounts on the future price of high sulfur fuel oil.

With the 2020 deadline on the maximum permissible level of sulfur in marine bunkers fast approaching, the forward curve is heavily discounting heavy fuel oil, creating an opportunity for owners to hedge their forward fuel costs.

At the front end of the forward curve the discount between high and low sulfur product in Singapore and Rotterdam is around $4 but in the Calendar 20 futures market the spread is over $70 and could go higher.

The Cal19 Rotterdam barges contract is pricing at around $300/tonne and Cal20 at around $260 while the November spot price is hovering around $350/tonne. Using the futures market, shipowners can lock in the cost of future fuel purchases against any subsequent price rises.

“We are already seeing a huge move in Cal19/20 HSFO spreads and the same in the Low Sulfur/High Sulfur fuel oil spreads,” says FIS Bunker Broker Luke Longhurst. “Whether or not shipowners switch to low sulfur fuel oil after 2020 or continue to burn high sulfur product with a scrubber, they have an opportunity to cover a portion of their fuel costs in the next two years at prices that are lower than current spot rates.”

A shipowner who bought the Cal19 and Cal20 paper contracts at current levels can offset this against a potentially higher price when buying physical fuel oil in 2019 and 2020. If the spot price he pays is higher than the price of the paper contract, he would receive the difference in cash every month for the duration of the contract. If the price moves against him he can close out the position at any time.

Some shipowners have previously been reluctant to hedge fuel using derivatives because the highly liquid fuel oil market trades in sizes too large to for their needs or the cost of trading via a bank is too high.

FIS has solved this problem by enabling fuel buyers to hedge their fuel costs in any quantity, from one metric tonne upwards. In this way shipowners can more closely match their requirements to their fleets or even a single ship.

“There is a great deal of uncertainty around what happens after 2020 and this is partly because refiners are yet to make public a full specification for the kind of low sulfur fuel oil that will be available,” added Longhurst. “But owners can give themselves certainty about their fuel costs by taking advantage of falling prices to benefit until that date and even beyond.”