From Fujairah to Rotterdam, marine fuel under pressure

The international supply of fuel oil, used by ships and power plants, is expected to grow in the third quarter, depressing the marine fuel market as shipping demand remains weak, analysts say. (AFP)
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Updated 04 July 2020

From Fujairah to Rotterdam, marine fuel under pressure

  • Bunker hubs in UAE and Singapore report weak demand as ships skip some port visits

SINGAPORE: Global supply of fuel oil, used by ships and power plants, is expected to grow in the third quarter, depressing the marine fuel market as shipping demand remains weak, analysts and trade sources said.

Third-quarter supply is estimated to rise by 620,000 barrels per day (bpd) from the second quarter as China and Brazil increase production, according to consultancy Energy Aspects.

This comes as inventories across key marine refueling hubs recently reached all-time highs, depressing bunker fuel prices and refiners’ margins and dashing hopes for a profitable year for sellers of low sulfur fuel that meets new emission regulations set by the International Maritime Organization.

“We had 9-10 million tons (of fuel oil inventories) at the start of the year that was supposed to draw by the start of Q2 but we are seeing 13 million tons now and (it is) building every month,” said a senior fuel oil trader who declined to be identified.

Inventories in northwest Europe and the UAE were at record highs in June while those in top bunkering port Singapore climbed to their highest level in more than three years.

Record supplies have depressed the delivered VLSFO (very low sulfur fuel oil) bunker spot discount to around record lows of about $45 per ton below benchmark gasoil prices and cut Asian refiners’ profits by nearly 80 percent from their record highs at the start of the year to $10.25 a barrel on Thursday, according to trade sources and Refinitiv data.

HIGHLIGHTS

  • VLSFO market weighed down by rising supplies.
  • Global fuel oil supply to increase 620,000 bpd.
  • Bunker demand to remain depressed in Q3.

Signs of weakness in bunkering demand have also emerged in Singapore, which is by far the world’s largest marine refueling hub, and in the UAE’s Fujairah hub.

“Until recently, bunker fuel sales at key bunkering hubs were buoyed by opportunistic restocking, but sales volumes have since caught up with the reality of slowing global trade,” Energy Aspects said in a note on Wednesday. “Weak demand and rising supplies have meant that VLSFO cracks are struggling to stay in positive territories as refinery restarts on account of improving on-road fuel demand continue to depress the sluggish bunker market.”

The demand outlook remains weak, according to multiple Singapore-based bunker traders. “A meaningful rebound in bunkering demand is unlikely before the end of the summer,” Energy Aspects said.

The number of container ship blank sailings, for example, increased to 82 in the week to June 28 from just 13 in the week of May 17, Alan Murphy of consultancy Sea-Intelligence said on Tuesday.

An increase in blank sailings, or the number of vessels that skipped a port along its route or has had its entire journey canceled, is likely to limit demand for bunkers.

Similarly, spot crude oil tanker fixtures fell 7 percent in the first half of 2020 compared to year-ago levels as the coronavirus, Poten & Partners said in a note on Friday.

The International Monetary Fund has predicted a deeper global recession as the coronavirus causes deeper damage to economic activity than first thought.

“The IMF projection, if it turns out to be correct, is telling us that the current low demand levels are likely to persist for a while,” Murphy at Sea-Intelligence said.


Lebanon’s $15bn blast repair bill adds to economic misery

Updated 06 August 2020

Lebanon’s $15bn blast repair bill adds to economic misery

  • Beirut port devastation brings warnings of housing crisis and billion-dollar hit to exports, imports

BEIRUT: Lebanon could face a repair bill of up to $15 billion in the aftermath of a cataclysmic chemical blast at Beirut port, according to a top government adviser.

The explosion, which was felt as far away as Cyprus, killed at least 100 people, wounded thousands and left an additional 300,000 Beirut residents homeless. 

It is thought to have been caused by nearly three tons of ammonium nitrate, a common agricultural fertilizer, that was confiscated in 2013 and improperly stored in warehouses. But after months of economic misery, the collapse of the currency and mounting civil unrest, it is being seen as the consequence of years of neglect, financial mismanagement and corruption as across the country.

Charbel Cordahi, an economist and financial adviser to the president, estimated the cost of damages from the explosion, including compensation, at around $15 billion. 

“Up to 70 percent of Lebanon’s trade channels through the port of Beirut,” he told Arab News.

“Airports and other ports in the country can facilitate only 30-40 percent of this trade, and opening the borders with Syria can facilitate another 20 percent. This means that at least $5 billion of imports will not find their way to the country, and another $2 billion of exports will stay on ground in the coming eight months. This represents a loss of around $4 billion, or 15 percent of gross domestic product,” he said.

He added that without an international aid program, “Lebanon cannot face this disaster.”

The explosion caps months of misery for the Lebanese, nearly half of whom now live below the poverty line. Popular anger directed at the government and political classes has swelled as a wider economic crisis has been made worse by the impact of the coronavirus pandemic.

Efforts to assess the damage at Beirut port, the country’s main trade gateway, are already underway. The second priority will be to restore food security and ensure the country does not run out of wheat after grain silos were destroyed, while also making sure residents who have lost their homes are rehoused as quickly as possible. Maintaining medical supplies and mitigating the environmental impact will also be a priority for city chiefs.

Many residents of the city are unable to return to their homes, even if their buildings remain visibly intact, because of the potential structural damage caused by the 4.5 Richter-scale blast.

“We need other countries to help us reconstruct Beirut,” Gen. Mohammed Kheir, secretary general of the Higher Relief Council, told Arab News. “We would be grateful if each country rebuilt a street or neighborhood in Beirut, like they did following the 2006 Israeli aggression. That would be the best way.”

He also appealed for emergency prefab homes for families for whom the government may not be able to provide housing.

Beirut Gov. Marwan Abboud, who estimated the primary damage at $3-$5 billion, appealed to the international community and the Lebanese diaspora to help.

Health officials had told Arab News that the country was running low on medical equipment, especially items needed for major surgery, and hoped that aid from abroad would fill the gap.

It is still too early to assess the full environmental impact of the blast, but environmental expert Mostapha Raad said a potentially bigger catastrophe may have been averted when the wind carried away a toxic cloud filled with nitric acid away from land and toward open sea.

“We were afraid the ammonium nitrate residue would lead to cooling off the weather and causing acidic rain, but according to tests on air samples, the result was green and the cloud disappeared over the sea,” he said.