Increased fuel efficiency weakening US, Panama bunker demand

Demand for bunker fuel in the US and Panama has fallen to near all-time lows, with some ports selling retail fuel at a loss, due in part to increased use of fuel efficiency measures such as slow-steaming, market sources said this week.
Atlantic Coast and Gulf Coast bunker demand, including Panama, is at the lowest levels of several years, sources said. Some suppliers have said the demand is the lowest they've ever seen for this time of year. That has played out in the retail bunker market where values have been at historically tight spreads to the cost of resupply.
Gulf Coast retail RMG 380, the most heavily used grade of bunker fuel, fell to as much as a 50 cent/barrel discount to both bulk RMG 380 and bulk Gulf Coast 3.0%S in late March, according to Platts data. By April 4 that relationship had flipped back to a more traditional bulk discount to retail.
Retail Houston RMG 380 was assessed at $606/mt, or $95.43/barrel of oil equivalent, $2 above bulk RMG 380, which was assessed at $93.43/b, a level near the floor of profitability for a bulk-to-retail costs, market sources said. However, bulk RMG 380 in the Gulf Coast has been heard to be strengthening to as much as Gulf Coast 3.0%S plus $1.50/b (it was assessed at Gulf Coast 3.0%S plus 35cents/b on April 4), which would put bulk values once again at a premium to retail.
The Panama-to-Houston IFO 380 CST premium reached its narrowest point since September on January 16, when it was assessed at $10.50/mt. IFO 380 that day was assessed in Panama at $632/mt ex-wharf and in Houston at $621.50/mt ex-wharf.
Panama suppliers have said they need a $30-$40/mt bunker premium to Houston to cover costs, while buyers said the premium only needs to be $20-30/mt.
Demand levels haven't been quite as low in the Atlantic Coast, but New York Harbor bulk-retail spreads are still far tighter than historical levels. While the spread from Atlantic Coast 3.0%S to New York Harbor RMG 380 his traditionally fluctuated between plus $3/b and plus $7/b, since the beginning of March it has spent much of the month at plus $2/b.
"Slow-steaming is part of the lack of demand," one Atlantic Coast bunker trader said. SLOWING SPEED IN ORDER TO MAKE UP GROUND
Slow-steaming involves slowing the speed of a ship as it comes into port, reducing the amount of bunker fuel consumed, despite the extra steaming time required. This is due to the geometric relationship between ship speed and engine output, according to a 2010 report by Wartsila.
"The power required from the main engine correlates disproportionately with the ship's speed. For example, reducing the nominal ship speed from 27 to 22 knots (-19%) will reduce engine power to 42% of its nominal output," the report said.
One ship owner said a ship can save 10-15 mt/d of bunker fuel by slow-steaming. Another market source noted that the ship would need to be at least as large as an Aframax, which can typically transport 130,000-140,000 mt of crude, to get 10-15 mt/d savings.
"You basically have the same amount or more cargo being moved but more fuel efficiently," a ship owner said. "So voyages use less fuel because time is so cheap."
If a ship decreases its speed by 0.5 knots, it will consume about 6% less bunkers than it normally would, a Latin American supplier said.
Slow-steaming is desirable right now because freight rates are so low and shippers are looking to shore up their bottom line however they can, sources said.
"It's been like this ever since freight rates went in the dumper," an Atlantic Coast bunker trader said. "If shippers are making good freight, they don't care about bunker costs."
Slow-steaming ships to save money on fuel is a growing trend which began several years ago due to poor economic conditions globally, ship owners said this week.
A second ship owner said the practice, which began three to four years ago, is growing in popularity and ships are moving more and more slowly, largely because of the weaker global economy.
And with freight rates expected to remain low for the foreseeable future, slow-steaming seems likely a trend which will be here for some time to come, sources said. A CONVERGENCE OF DEMAND FACTORS Suppliers said that while low slow-steaming is a factor in low bunker prices, increased competition among suppliers at some ports, particularly in Houston and New Orleans, is also playing a role.
"You've got a lot of European guys coming into the market now who used to work through a broker, but are now coming in directly themselves," one bunker trader said.
Refinery turnaround season during the first quarter also likely decreased the amount of refined products needing to be shipped, reducing demand in the Gulf Coast in general, market sources said.
Increased prices for bunker fuel due to the MARPOL treaty mandated Sulfur Emissions Control Area around US ports, limiting bunker fuel sulfur emissions to 1.0%S, has also greatly reduced demand and increased the need for more fuel efficiency in the US, sources said.
Source: Platts