Hello, it’s IINO.
I would like to broadcast IINO san’s Logistics Radio.
Today, I would like to talk about, “Ship Fuel Oil Price Surges to USD752, Approaches Record High on Tensions in Russia and Ukraine”.
Daily Logistics Radio by IINO san in 17th Feb. 2022
Ship Fuel Oil Surged
The price of marine fuel oil has been rising sharply.
The price of VLSFO, Very Low Sulfur Fuel Oil, in the Singapore market on Feb. 14 hit USD752 per ton, up USD20 from the previous day.
This is approaching the all-time high recorded two years ago.
Ukraine Situation Tightens
Uncertainty over energy supply and demand due to tensions in Ukraine is pushing up oil prices.
The price of low-sulfur fuel oil in Singapore has already increased by over USD130 compared to the beginning of this year.
It is approaching the all-time high of the high dollars 750s, which was recorded just after the start of SOx regulation in January 2020.
About SOx Regulation
SOx regulation is the regulation on exhaust gas from marine fuels.
Until this regulation was enacted, ships used inexpensive C fuel oil.
About C Fuel Oil
C fuel oil has a high sulfur content, about 3.5%, and is also known as high sulfur C fuel oil. Using C fuel oil with high sulfur content will cause PM2.5.
About A Fuel Oil
Therefore, SOx regulations require the use of heavy oil A, low sulfur heavy oil A.
Low sulfur heavy oil has a sulfur content of 0.5% and is less likely to produce PM2.5.
The low sulfur fuel oil I mentioned at the beginning of this article is like high-octane fuel oil, and its price has been rising.
Impact on the Management of Japanese Ships
The three Japanese shipping companies, NYK, MOL, and Kawasaki Kisen, have almost fixed the cost of bunker oil by the end of March.
And the impact on their earnings this fiscal year will be limited.
However, the article reports that if the price hike of bunker oil is prolonged, it may put pressure on their earnings in the next fiscal year and beyond.
Impact of Weaker Yen
Moreover, the yen is weak right now, and the Bank of Japan has decided to purchase unlimited amounts of 10-year JGBs at a yield of 0.25% in a “limit operation”.
It makes easy for the yen to weaken and the dollar to appreciate.
Since fuel oil fuel is purchased in dollars, a weaker yen effectively makes fuel oil even more expensive.
Therefore, I think it will affect the management of Japanese ships.
A and C Fuel Oil
The price of C fuel oil has also risen, up USD21 from the previous day to USD536 per ton.
Although C fuel oil is cheap, it is regulated and cannot be used as is.
In order to use C fuel oil, a scrubber, which is exhaust gas cleaning device, is required on the ship, which costs about USD870 thousand.
The price difference between A fuel oil and C fuel oil is over USD210 per ton, and the average price difference last year was about USD120 per ton.
The average price difference last year was about USD120 per ton. The article said that scrubber-equipped ships that can use C fuel oil are becoming more competitive.
Types of Heavy Oil
There are actually three types of heavy oil, which are explained in a simplified manner in this radio.
High sulfur C fuel oil
High sulfur A fuel oil
Low sulfur A fuel oil
To explain briefly, both A and C fuel oil prices have risen, and in order to use the cheaper C fuel oil, scrubbers are required.
This means that shipping companies that use ships with scrubbers will have an advantage.
International Situation and Weakening of the Yen
Freight rates are currently high due to disruptions in the supply chain. However, there is also the possibility that fuel costs will rise due to disruptions in the international situation.
If you are involved in trade or international logistics, I think it is good to watch the news from the perspective of the situation in Russia and Ukraine and the impact of the weak yen.
That’s all for today. Thank you.