London — Bunker fuel volumes sold on a contract basis rather than on the spot market are expected to increase as the market's focus remains firmly on the approaching tighter sulfur regulations. Receive daily email alerts, subscriber notes & personalize your experience. As the International Maritime Organizations Maritime Organization's global bunker sulfur limit drops to 0.5% from 3.5% at the start of 2020, bunker fuel buyers will be looking to try and guarantee supply of their chosen compliant fuel. Many bunker market participants are already seeing a shift towards more volume being bought on a contract basis rather than on the spot market. "[There is] less activity worldwide on the spot market," one bunker buyer said. "There is no change in the volume being [sold]. However, many [participants] are moving more on to contract." Larger ports with a lot of vessel traffic, and often much larger sale volumes, see a higher proportion of contract sales compared to the smaller ports which often have a dominance of spot market sales, sources said. "Piraeus generally [sees] more on contract compared to Istanbul...Piraeus is a bigger port so it is logical to have more contracts there," a trader in both the East Mediterranean ports said. While one of the main reasons for the current movement towards contracts is buyers trying to build longer-term relationships with the supplier in preparation for a reliable supply of compatible and compliant bunker fuel, there are other factors coming into play. One of these other factors is suppliers looking for a guaranteed outlet for their product, particularly 3.5% sulfur fuel oil. As residual fuel oil is not one of the money-making products to come out of the refinery, suppliers are very keen to make sure they are selling all of the product produced month after month to ensure that it is not taking up too much storage space, a buyer said. Another factor behind the increase in contract buying is the fact that many market participants are fearful of how high prices are going to rise on the back of the bullish crude complex and want to lock in prices, a second buyer said. A physical supplier in the bunkering hub of Rotterdam however disagreed with this. "If they lock in product it is not on a fixed price basis...more [on a] floating [basis]," the supplier said. While contracts may work for many players in the market, they can be very complicated to develop. It is not easy to lock in prices and often it can tricky to find a pricing structure that works for both the supplier and the buyer, said a trader in the African bunker market. The key driver behind the expected increase in volumes sold on a contract basis rather than on a spot basis is the tighter global sulfur limit of 0.5% which comes into force on January 1, 2020. While the movement from spot to contract has already been noted by many players in the bunker market, the big switch in preparation for 2020 is not expected to occur until towards the end of 2019. "Once [we hit] Q3 2019 people will look towards the contracts," a third buyer said, noting that many majors are not coming out with new contracts at the moment due to recent financial instability scares in the market. Aegean's financial situation in the first half of 2018 and the recent consolidation of Bomin Group's physical supply presence has resulted in some hesitancy in the market. Compatibility concerns surround the many variations of 0.5% sulfur bunker fuels that will likely be available and uncertainty over where -- and even how much -- 3.5% sulfur bunker fuel will be available for those vessels with scrubbers. "The [3.5% bunker fuel] market in Rotterdam will tighten up again," the third buyer said. These concerns mean that many buyers will be looking to contracts in order to either receive a supply of compatible 0.5% fuel or guarantee availability of 3.5% fuel oil. "Owners would like to have the guarantee of a good product with a good and reliable supply so they choose a more long-term relationship," the physical supplier said. Buyers in the industry see the market being heavily supplier-oriented for 0.5% as many participants are looking at this fuel as their likely solution to the tightening sulfur cap and receiving compatible batches of the fuel will be their priority. Moving towards 2020 and onwards, "0.5% fuel will be a branded market [with] limited availability on the spot market," the third buyer added. Global producers ExxonMobil and Shell announced Wednesday the majority of their supply locations for their 0.5% sulfur marine fuels, with ExxonMobil going one step further and confirming that their fuels across the supply locations would be compatible with each other. The bunker market now awaits news from other big players regarding their supply plans for 2020. --Emma Kettley, emma.kettley@spglobal.com --Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com
Bunker fuel sold on contract is expected to increase as the IMO framework 's sulphur cap deadline approaches on 1 January 2020 , and shipowners look to lock in reliable , compatible and compliant bunker fuel . By increasing supplies , owners may ensure that they remain compliant to the EU mandate and will not have to rely on the volatile spot market . So far , ExxonMobil and Shell have announced their main storage locations for low - sulphur bunker fuel , with ExxonMobil also ensuring that its fuels at different locations will be compatible with each other .