According to Bloomberg News, the shipping industry has started feeling the pressure of swelling gasoline and diesel costs. Shipping fuel is made up of similar ingredients used by the refiners that go into making gasoline and diesel. However, with margins of gasoline and diesel manifesting an upward trend, it has been making the production more challenging, with supplies becoming tighter for the maritime segment.
The biggest expense for the shipping sector is fuel, and if there is an increase in the cost, it adds up to the inflationary pressure, making the conditions of the already stressed supply chains globally worse. The price of marine fuel in Rotterdam is at its peak from the latter part of 2019 to the beginning of the current week, registering an upswing of 23% since the beginning of the current year.
According to Mark Williams, Woo Mackenzie Ltd’s refining and oil products analyst, this is one of the reasons for commodity prices and inflation globally to be so high.
The majority of the increase in price in the cost of ship fuel has been due to crude oil rally, which has been used in making the most of marine fuel. Another aspect that has contributed to the rising costs is that since 2020, most shippers have been urged to burn products containing lower sulfur content in them.
However, Bloomberg News reports that in Europe, the cost of 0.5% marine fuel, which is referred to as very low-sulfur fuel oil or VLSFO, has escalated much faster than crude oil. This is due to tight supplies that form part of the region’s strong diesel market.
With the high profits obtained from making diesel, oil refiners are offered incentives so that lower sulfur ingredients are generated at hydrocrackers and hydrotreaters into diesel instead of VLSFO.
The story is the same as with a strong gasoline market. However, it is more appealing to put another feedstock known as low sulfur vacuum gas oil into the many units that develop road fuel instead of VLSFO, although this is a trend that has been the case of late.
An arbitrage opportunity has supported the VLSFO market in Europe at the beginning of this year. This has led to cargoes, which has left the region for fetching better prices in Asia.
