(the “oil spread”) is important factor for owner’s decision. Due to lack of VLSFO facility(distilled facilities) and sudden higher demands, it was expected very high price of VLSFO and it looked right around end of 2019 and early 2020. But since IMO 2020 went into effect on 1st Jan. 2020, VLSFO price has fallen dramatically due to combination of COVID-19 outbreak and economic recession. The biggest oil spread* was USD 350/mt and the smallest was only USD 33/mt.
* Oil spread : Fuel price difference between VLSFO and HSFO.
<Oil spread chart / Reference : Clarksons report>
<Oil trend chart / Reference : Oilprice.com>
Simple question! Both HSFO
and VLSFO are produced based on crude oil. It means their price should follow
the trend of crude oil price. For the price of HSFO, it followed the trend, but
for the VLSFO, it was not. The trend of crude oil and HSFO showed “V” shape but
VLSFO showed “L” shape. It was the reason why oil spread got less in 2020. It means price of VLSFO is free from price trend of the crude oil. How is it
possible? Because VLSFO was produced by method of blending not by distilled. In case of
blending oil, its quality is expected poor and it leads damage for the main engine. But
it was not. Why?
Because at cheap price, high
quality jet oil and diesel oil used in VLSFO blends due to consuming of
aviation and car oil market were also collapsed.
So, oil suppliers could catch both quality and price of oil very well!
However, if these oils cannot
come for the blending anymore by recovering of economy & traveling, it
means most VLSFO has to product only by distilled method. Then there must be
lack of supply and VLSFO will get expensive extremely.
It is already excited how the VLSFO price increase in 2021.
In my opinion, oil
spread will be around USD 150 – 200/mt sooner or later.
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