The sinking price of ship fuel: Near prewar levels after summer plunge

HSFO fuel price gives back all Ukraine-Russia war gains, VLSFO also falling

photo of a container ship getting fuel

Fuel tanker alongside a container ship (Photo: Shutterstock/VladSV)

It was yet another warning sign on inflation: The price of fuel for commercial ships spiked after Russia invaded Ukraine and hit all-time highs in May and June. But that trend has now reversed. The price of ship fuel plunged in July and August and is now back to roughly prewar levels.

According to Ship & Bunker, the average price for fuel known as very low sulfur fuel oil (VLSFO, sulfur content: 0.5%) at the world’s top 20 refueling hubs was $800 per ton as of Friday. That’s down 29% from the all-time high of $1,125.50 on May 14. Just before the war, VLSFO averaged around $750 per ton.

Ships with exhaust-gas scrubbers can burn cheaper fuel with 3.5% sulfur content known as high sulfur fuel oil (HSFO). Ship & Bunker data put Friday’s average HSFO price at the top 20 refueling hubs at $571.50 per ton. That’s down 26% from the record of $769.50 per ton on May 5 and a few dollars below the HSFO average immediately prior to Russia’s invasion.

Based on averages at top 20 ports (Chart: American Shipper based on data from Ship & Bunker)

But to put the pullback in broader context: While the war upside is largely gone, today’s VLSFO prices are still higher than at any point in history prior to 2022, eclipsing earlier HSFO spikes in 2008 and 2012.


VLSFO-HSFO fuel spread slashed in half

The spread between VLSFO and HSFO represents the savings obtained by operators of ships with scrubbers. That spread is also down sharply from recent highs, although it’s still wide enough to justify scrubber investments.

IMO 2020, the regulation mandating the global switch to low-sulfur fuel, went into force on Jan. 1, 2020. During the early transition period, in January 2020, the VLSFO-HSFO spread jumped to $315 per ton. In the wake of the war, it easily topped that.

Based on Ship & Bunker averages for the top 20 refueling ports, the spread peaked at $420.50 per ton on July 5. It is now down to almost half that: $228.50 per ton as of Friday.

Based on averages at top 20 ports (Chart: American Shipper based on data from Ship & Bunker)

The spread has a major effect on the spot earnings per day of bulk commodity vessels. Such ship operators pay for fuel in spot deals, so the savings increase the earnings.


According to Clarksons Securities data, a 2015-built very large crude carrier (VLCC) with no scrubber, burning VLSFO, earned $14,800 per day in the spot market on July 5, when the spread was at its peak. The same ship with a scrubber burning cheaper HSFO saved $17,900 per day in fuel costs, meaning it earned $32,700 per day net of fuel on July 5 — more than twice the nonscrubber VLCC.

Clarksons estimated that a 2015-built nonscrubber VLCC earned $54,400 per day on Monday. (Rates are up sharply since July due to both higher tanker demand and lower fuel prices.) The same ship with a scrubber would save $8,400 per day in fuel, less than half the July savings. The scrubber-equipped VLCC would net $62,800 per day, 16% more than the nonscrubber VLCC.

Fuel effects in container shipping

Container lines recoup higher marine fuel costs by adding bunker adjustment factors (BAFs) to contract rates. Carriers have been hiking BAFs each quarter from Q4 2020 to Q3 2022.

On the spot side of the business, however, carriers are exposed.

In March-May, as marine fuel prices surged in the aftermath of the war, the Drewry’s Shanghai-Los Angeles spot index fell 25% and the Drewry Global Composite Index fell 19%. Carriers were not recouping added fuel costs.

Spot rates in $ per FEU. Blue line: global composite, green line: Shanghai-Los Angeles (Chart: FreightWaves SONAR)

On one hand, the fall in the price of marine fuel could give spot rates more leeway to drop. Vespucci Maritime CEO Lars Jensen said in a recent online post: “During the spring and early summer, the increasing fuel price served as a ‘brake’ preventing spot rates from dropping too quickly. Now that situation has reversed.”

On the other hand, declining marine fuel prices will have a positive effect on liners’ costs. Carriers are inherently conservative in their guidance. They likely assumed fuel prices would remain high in the second half when setting earnings expectations. 

Hapag-Lloyd CFO Mark Frese said on the latest conference call: “Unfortunately, the horrible war in Ukraine and the resulting uncertainty in the international energy markets drove oil and hence bunker prices up substantially. The strong increase of oil prices was therefore the main driver of our rising unit cost [in Q2 2022], leading to a much higher bunker expense.”


Hapag-Lloyd CEO Rolf Habben Jansen said that his company’s upgraded full-year guidance assumed that “the consumption price of fuel is definitely going to be up.” Carrier bunker costs will certainly be up year on year. But the increase may not be as much as previously assumed if prices stay at current levels or ease further in the second half.

LNG marine fuel prices surge

Another variable in the cost equation is the use of liquefied natural gas (LNG) as bunker fuel. LNG has been touted as a cleaner option than VLFSO during the transition to the use of future fuels such as methanol, ammonia and hydrogen.

A large number of newbuilds have been ordered with dual-fuel capabilities allowing them to consume either traditional fuel or LNG. Classification society DNV reported in early May that there were 155 container ships on order that will be capable of using LNG as fuel, as well as 90 tankers and 51 bulkers.

On the last conference call of shipping liner company Zim (NYSE: ZIM), CEO Eli Glickman said that 28 of the company’s 46 chartered newbuilds scheduled for delivery in 2023-2024 will be LNG-powered.

“Approximately a third of our capacity could be LNG-powered when we take delivery of these vessels,” said Glickman. He maintained that the new ships will be fuel efficient, offer a lower cost structure, and help the company and its customers meet environmental, social and governance (ESG) goals.

The problem with LNG-powered ships is that the Russia-Ukraine war has dramatically increased the cost of LNG. And unlike traditional marine fuels, there has been no price reversal as the conflict has dragged on. On the contrary, LNG commodity prices hit fresh highs on Monday.

Data from the Port of Rotterdam in the Netherlands revealed a plunge in buying of LNG for bunker fuel in Q2 2022. Volume sank to 63,497 cubic meters, down 60% from Q2 2022 and 43% from the first quarter of this year. “The rally in LNG prices weighed on demand for the fuel,” wrote Argus.

According to Ship & Bunker data, the price of LNG bunker fuel in Rotterdam is currently 4.8 higher per ton than VLSFO and 6.6 times higher  than HSFO.

(Chart: American Shipper based on data from Ship & Bunker)

Click for more articles by Greg Miller 

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