Key facts
- Marine gasoil (MGO) prices are increasing faster than VLSFO and HSFO in Europe.
- MGO prices in the Amsterdam-Rotterdam-Antwerp (ARA) hub increased by 73.5% from Feb. 28 to July 27.
- Russian diesel exports have reached a 10-year low.
- European diesel stocks have decreased.
- Renewed Red Sea hostilities are increasing ship diversions and bunker fuel demand.
Marine gasoil (MGO) prices are rising faster than very-low sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO) values in Europe, supported by tight prompt supply. MGO prices in the Amsterdam-Rotterdam-Antwerp (ARA) hub rose by 73.5% between the start of the US-Iran war on February 28 and July 27, according to Argus data. This compares with a 38% increase for VLSFO and a 27% increase for HSFO in the same period. In the Gibraltar-Algeciras-Ceuta (GAC) hub, prices for MGO rose by 64.5%, while VLSFO values firmed by 42% in the same period, with HSFO prices rising 27% in Gibraltar.
Market participants attributed the differential between the fuels to tight prompt supply stemming from Russian diesel exports hitting a 10-year low and reduced refinery output. Around 22,560 t/d loaded at Russian ports on July 1-21, according to data analytics platform Vortexa, down from 62,000 t/d in June, the lowest daily average for any month in at least 10 years.
The war in the Middle East has also changed bunkering and cargo flows in Europe and Africa, and renewed hostilities in the Red Sea are increasing ship diversions through the Cape of Good Hope. Meanwhile, diesel stocks in Europe are decreasing. Diesel and other gasoil stocks held independently in Amsterdam-Rotterdam-Antwerp dropped by 2.6% to 1.64mn t, their lowest since August 2022, as there were no imports during the week.
Marine fuels supplier Peninsula warned that these renewed tensions could create a "perfect storm" for ship operators by increasing bunker fuel demand to cover the detour. To re-route via the Mediterranean also would mean to increase MGO or biofuel demand, since the region is an emission control area (ECA), the company said. MGO demand is usually firm in Europe because of ECAs operating in the Mediterranean Sea, the North Sea and the Baltic Sea. Regulations require shipowners to burn fuel with up to 0.1% sulphur content, hence restricting fuel specifications or requiring the installation of a scrubber to reduce sulphur content. Ultra-low sulphur fuel oil (ULSFO), traded at a discount compared with MGO, is also an option that complies within the ECA, but the grade has yet to gain significant market share because buyers are concerned about quality issues and availability outside of Europe, leaving MGO as the preferred option to comply with the ECA.