Scrubber Rate Premium
At the start of 2020, the price differential between 0.5% Low Sulfur Fuel Oil (VLSFO) and 3.5% heavy sulfur fuel oil (HSFO) was running at more than $300 per tonne, before collapsing to $70 per tonne in March and averaging just $60 per tonne in 20Q2. Going forward, the differential is expected to increase modestly to $90 per tonne during 2021, and to an average of $100 per tonne from 2022 through 2024, as oil prices recover in the coming years. This projection reflects the forward curves for HSFO and VLSFO prices, as of early August.
Presuming that spot rates are set by the ships burning VLSFO, and that owners trading spot will realize the full cost savings offered by burning HSFO vs. VLSFO after they have invested in scrubbers, the average spot rate differential for a VLCC in 20Q2 was estimated to be $2,500 per day, which is seen rising to $3,000 per day in 20H2. For a Cape bulker, we see the differential rising from $1,800 per day in 20Q2 to $2,100 per day in 20H2.
We expect the sulfur differential to increase slightly over the next two years, as indicated by the forward market, bringing the scrubber premium back up to about $4,000 per day for a VLCC and to $3,000 per day for a Cape.
Marsoft is monitoring developments in the scrubber and fuel markets closely and we have integrated the scrubber premium models into our Flagship System, which provides financial performance and risk assessment services for numerous types of specific ships.