Ship Fuel, Once a Pariah Product, Now Costs More Than Car Fuel

  1. Bunkers now more expensive than other fuels in barrel terms
  2. IMO 2020 rules have triggered demand for low-sulfur product

(Bloomberg) Once considered the pungent sludge left over after refineries made things like gasoline and diesel, fuel for ships has suddenly become the oil industry’s must-make product.

The prices of so-called bunkers in Europe have surged this year to such an extent that they’re more expensive than diesel, gasoline and jet fuel — at least in barrel terms, the unit that refineries use to calculate their processing margins.

The reason for the rally is because the fuel in question just fundamentally changed. On Jan. 1, it became mandatory for most of the world’s merchant fleet to consume fuel containing no more than 0.5% sulfur. Until Dec. 31, a 3.5% upper limit existed in most parts of the world.

The upgrade — to improve human health and combat environmental concerns — has radically altered economics for refineries in many parts of the world. Some can churn out the new product, others are likely having a tougher time.

To be clear, at an industrial level, the products in question often trade in and are shipped in metric tons. And on a price-per-ton basis, shipping fuel remains the cheapest of the four products in northwest Europe, despite surging in recent weeks. That’s because it’s much denser than those other products.

Supply of the new shipping fuel is going through a few teething problems. It’s often made in slightly different ways than the old type. Some testing companies are finding fault with early batches of the new product, even if the full scale of those issues remains unclear.

By Jack Wittels with assistance by Alaric Nightingale

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