Global Marine Fuel Market Trends – Sustaining the Key Enabler of Maritime Trade

Shipping is one of the principal facilitators of global economic growth and supports international trade. Thus, a birds-eye view of the global maritime trade is adequately capable of presenting the integral nature of marine fuel thus partly responsible for sustaining the marine fuel market. Due to the global economic and trade slowdown, the international maritime trade came to a standstill during 2018 in comparison to its performance during the preceding years and was at its nadir since the financial crisis of 2008–2009. Moreover, trade volumes marginally expanded at the rate of 0.5% registered in 2018 after a moderate increase that was registered in the order of 2.8% during 2018. Such maritime trade performance has been a result of the following:  low oil demand growth, sanctions, supply-side disruptions, Viz.  Cyclone Veronica in Australia, the collapse of Vale dam in Brazil, trade policy tensions, and unfavorable economic conditions and social unrest in a few nations. However as depicted by the second illustration below, the total maritime trade volume during 2019 has been estimated in the order of 11.08 billion tons by UNCTAD (The United Nations Conference on Trade and Development).

marine fuel market

The global GDP during 2019 diminished to 2.5 %, which was 3.1 % which was registered in 2018 and 1.1 % point below the historical average in 2001–2008. Further, both developing and developed economies were affected which demonstrated the persistent trade tensions between China and the United States and the overall deterioration of the economy. Besides, despite the gradual maturation and diversification of the Chinese economy, trade tensions have been a key determinant to its poor GDP expansion in 2019. Besides, with the outbreak of COVID 19 pandemic that was initially localized in China, and evolved rapidly during the early 2020 and its consequences on the consumption patterns, mobility trends, production volume, and the global economies as well as the world supply chains have led to a global recession. Despite the black swan events like COVID 19 that is extremely rare and unpredictable, with potentially severe consequences like supply-chain disruptions, falling global demand and global economic uncertainty, and stagnant outlook mentioned above some countries gained export market share as companies looked for new suppliers from countries that were not directly affected by the rising tariffs, which had otherwise e heightened policy uncertainty, undermined investment and adversely affected global trade. Additionally, during 2019, the biggest slice of the global maritime trade pie was constituted by developing economies with cargo being unloaded accounting for 65% and cargo being loaded accounting for 58% around the world. 42% of the global merchandise exports carried out by sea were generated by transitioning and developed economies collectively and the imports generated via the same means were in the order of 35% of the global trade of the same nature.

International Maritime Trade – ALL CARGO

marine fuel market

In Million Tons Loaded

Source: UNCTAD

Marine fuel market conditions that are anticipated influence the market growth

Global bunker fuelaka marine fuel demand is anticipated to substantially reduce as a result of the COVID 19. Further, a market that was already facing the effects of a global economic downturn and which earlier had to undergo a transition to the IMO’s (the International Maritime Organization) low sulfur mandate w.e.f.  January 2020 has experienced the amplification of credit risks.  However, the demand for marine fuels was resilient in major ports whereas in certain ports it varied, resulting in the steep drop in marine fuel sales volumes during June this year.  But at ports, where suppliers who have been known to provide the best quality services and guaranteed the quality of the fuel experienced strong demand.  On the other hand, fuel costs generally represent 50% of the total operating cost of a ship and are progressively prioritized for facilitating market advantage.  To date, residual/heavy fuel oil (HFO) which is the residue of the distillation process of crude oil, occupies a substantial share of the global marine fuel market with MGO (distillate marine gas oil) occupying a relatively smaller share. Additionally, MGO is one of the highest grades of marine fuel and is relatively more expensive because of its lighter fraction and better quality than diesel fuel. Further, it has 0.1 % sulfur content. The aforesaid is also the reason why MGO is made commercially available at a premium in relation to HFO which is of the lowest price.

Besides post sulfur regulation implementations, the vessels that would be permitted to continue employing HFO will be those that are equipped with exhaust scrubber. This is because post the IMO’s 2020 0.5% Sulphur cap on marine fuel, ships that are not fitted with scrubber systems a carriage ban was implemented March 2020 onwards. To this extent, it should be noted that in March 2020, 9,784 TEU post-panamax MSC Joanna (IMO: 9304435) has been prohibited from operating in UAE waters for 1 year. Its master has been banned indefinitely and is facing legal action from the Federal Transport Authority (FTA) of UAE after allegedly failing to comply with an order to debunker 700 tons of HFO before entering Dubai port of Jebel Ali. Conversely, all those without scrubbers are required to transition to MGO or other compliant variants. Major oil corporations are already moving towards producing the new sulfur blend which is in compliance with the new IMO directive.  However, the initial lack of shop equipped with scrubbers and the possible apprehension regarding compatibility issues pertaining to very low Sulphur fuel oil (VLSFO) does have the potential of the majority of the ship turning to MGO increasing its demand. On the other hand, the global collapse of marine fuel prices has significantly narrowed the price gap between VLSFO and HFO, this means that ship operators will take a longer time to recover the investment cost of scrubbers and have to withstand the reduction of charter rate premium for scrubber-fitted ships. This brings into question the economics of scrubber which is also a key determinant of the global marine fuel market.