The freight market is being continually buffeted by challenges and the latest in the spotlight is the sudden spike in the price of low sulphur fuel oil with the added uncertainty of availability and supply. The previous high for bunkers was back in July 2008 when Heavy Fuel Oil (HFO) hit $761 whilst today Low Sulphur Fuel Oil (LSFO) stands at $1,127 a massive $365 or +48% higher

than the 2008 peak. What is especially striking is the disconnect with long term crude charts as bunkers are now trading at a premium not the historical discount to crude.

With Russian oil being increasingly shunned by Western governments an unintended consequence has been to limit availability of the grade of oil suitable for the refining of Low Sulphur Fuel and Gas Oil; with the demand for ‘products’ generally gaining some momentum competition for these products and the tankers that carry them is likely to mean continued high premiums for both crude and LSFO in major bunkering hubs such as Rotterdam and Singapore. Lack of bunker supply is also adding to the current record congestion levels with queues for bunkers reported in certain ports .. recently for instance there were 7-10 day wait for tonnage to take on bunkers in Cape town.

The high cost of fuel will clearly start eating into Owners and Operators margins as a bigger percentage of earnings will be spent on bunkers. For example, we calculate Panamax tonnage performing Santos/China basis Singapore delivery at $70 freight to be spending around 48% of earnings to pay for LSFO and MGO compared to about 35% on average in 2021.