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23-02-2019

Shipowners with scrubbers should not hedge 2020 HSFO price risk: Goldman Sachs

Shipowners with scrubber-equipped vessels continuing to use fuel oil next year after the IMO’s marine sulfur limit drops are best advised to avoid hedging their fuel requirements at first to maximize savings, according to investment bank Goldman Sachs.

When the International Maritime Organization’s global bunker sulfur limit drops from 3.5% to 0.5% at the start of 2020, the majority of ships will shift from burning fuel oil to cleaner, more expensive alternatives. But those with emissions-cleaning scrubber equipment fitted to their vessels will be able to continue using fuel oil and see significant savings.
Fuel oil prices are expected to drop sharply towards the end of this year as the bulk of marine demand shifts to cleaner alternatives. To get the biggest benefit from that, those with scrubbers should avoid hedging for the first year, Goldman Sachs said in a report Thursday.

“For shipowners installing scrubbers, we recommend leaving 2020 HSFO exposure unhedged to be able to monetize any price weakness during early adoption,” analysts at the bank said.

But the initial drop in fuel oil prices may be short-lived as refiners continue to upgrade their facilities to cut fuel oil production.

“Given our view that the change in bunker fuel is likely to be relatively efficient in coming years, we… recommend locking in still discounted 2021-2023 prices,” the bank’s analysts said.

HSFO is set to weaken dramatically in comparison to other products in 2020. The differential between low sulfur fuel oil FOB NWE cargoes, with a sulfur content of 1%, and HSFO FOB Rotterdam barges, was assessed at $2.00/mt Wednesday.

In January 2020 and January 2021 this differential, known as the hi-lo, widens to $82.00/mt and $105.00/mt, respectively.
Source: Platts

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