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Bunker suppliers struggle to meet demand for forward commitment

Volatile prices and tightening liquidity are constraining the ability of fuel suppliers and smaller buyers to engage in forward commitment, say bunker experts

While the shortage of bunker supply has generated demand from some shipowners and charterers to lock in volume through forward contracts, not many fuel sellers can meet such requests

BUNKER suppliers say they are struggling to comply with demand from shipowners and charterers for locking in volume amid market uncertainties. 

Fuel buyers, especially the “large accounts”, are trying to secure part of their expected future consumption via forward contacts — despite high market prices — at least in the short term, according to Paulo Cheng, general manager of Sinopec Zhejiang Zhoushan Petroleum.

The company is the bunker licence holding arm of Sinopec Fuel Oil Sales, one of the world’s largest physical suppliers of very low sulphur fuel oil, known as VLFSO, which is now the mainstream marine fuel.

“They would like to lock in a certain percentage of their demand in major ports in Singapore, China and Europe. This is especially true for those [container] lines, who I believe are still making sufficient margins,” Mr Chen told the Marine Fuels 360 China webinar.

He said the move was partly driven by a supply shortage across all major bunker ports in the world during the first half of this year.

With elevated oil prices, bunker prices have surged to record highs this year despite some corrections seen in recent weeks.

The average price for VLSFO at the world’s top 20 bunker ports now stands at $995 per tonne, compared with $554 per tonne in 2021, according to analyst Ship & Bunker.

This is largely a result of the supply-side disruption caused by the situation in Russia and Ukraine.

Shipping units of large commodity trading houses, meanwhile, also want to secure some supply in advance even through fixed forward contracts for the longer term if they have the visibility of their fuel demand backed by the contracts of affreightment on hand, said Mr Chen.

The tight fuel supply remains a problem, according to Lynn Chong, regional sales manager at Singapore-based fuel supplier Sing Fuels.

“At this point of time, the real issue we are faced with, whether it is in China, Singapore or Amsterdam-Rotterdam-Antwerp, is product availability and inventory,” she told the webinar.

However, not many fuel suppliers can cater to shipowners’ demands for safeguarding future delivery.

“Customers would like to buy more forward [commitment] but unfortunately that is something that most of our suppliers are not able to commit to,” said Ms Chong.

Only 10% of the suppliers in Singapore are willing to offer fixed or even floating forward contracts for the first and second quarters of 2023 for high sulphur bunker fuel, for example, she said. “[This is] because of the current situation, where prices are [at the moment] and the unpredictability of the market.”

Mr Chen said tightening liquidity triggered by rising interest rates and higher bunker prices could also constrain the ability of fuel suppliers and smaller buyers to engage in forward commitment with increased credit risks.

The bunker market largely runs on credit, with fuel sellers acting as the de facto financiers for the buyers relying on this for their working capital.

“As an oil major and physical supplier, Sinopec can directly engage with large shipowners and operators who we deem as a safe counterparty,” he said, adding that the smaller players are facing lower credit lines extended by suppliers for risk control reasons.

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