Singapore HSFO/Brent Swap Cracks Rise to Two-Month High on OPEC Cut, Venezuela

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  • Front-month March FOB Singapore 180 CST HSFO/Brent swap crack spread was assessed at $1.357/b as of 4:30 pm Singapore time (0830 GMT) on Wednesday.
  • Similarly, March FOB Singapore 380 CST HSFO/Brent swap crack rose to 75.9 cents/b.
  • Countries in December decided to cut crude oil production with Saudi Arabia.
  • Further strength to fuel oil cracks was also seen from the US’ sanctions on Venezuelan oil.
  • The startup of Abu Dhabi National Oil Company’s 127,000 b/d residual fluid catalytic cracking unit could cut supply of straight-run fuel oil in Asia.

Singapore high sulfur fuel oil swap cracks to Brent crude oil rose to a two-month high Wednesday, on expectations of supply tightening from OPEC’s crude oil production cut, as well as the US embargo on Venezuelan oil, reports S&P Global Platts.

Front-month March FOB Singapore 180 CST HSFO/Brent swap crack spread was assessed at $1.357/b as of 4:30 pm Singapore time (0830 GMT) on Wednesday, the highest since November 30 last year, when the crack spread was at $1.449/b, S&P Global Platts data showed.

Similarly, March FOB Singapore 380 CST HSFO/Brent swap crack rose to 75.9 cents/b on Wednesday. The crack was also last higher on November 30 last year, at 85.9 cents/b, Platts data showed.

Reasons for the price hike?

“Saudi production cut amid Venezuelan geopolitical issues … you would expect lower fuel oil yield overall,” a Singapore-based trade source said. OPEC countries in December decided to cut 800,000 b/d of crude oil production with Saudi Arabia leading to the decision, and 10 non-OPEC producers led by Russia also deciding to slash another 400,000 b/d for six months beginning January.

“OPEC countries are cutting heavier crude oil first, which has typically lower values,” said a refining source in Singapore. Further strength to fuel oil cracks was also seen from the US’ sanctions on Venezuelan oil.

The Trump administration announced on January 28 that it would sanction PDVSA, Venezuela’s state-owned oil company, a move that could suspend roughly 500,000 b/d of Venezuelan crude exports to US Gulf Coast refineries.

“US refiners use Venezuelan heavy sour crude as feedstock for secondary units. They have to buy high sulfur straight-run fuel oil as an alternative,” said a fuel oil trader in Singapore.

Venezuela is a major fuel oil exporter to the US. The South American country exported 6.325 million barrels of fuel oil to the US Atlantic Coast in 2018, according to US Energy Information Administration data.

The US Must Look For Alternative Sources

Sources last week said that if US refiners cannot get their sour crude from somewhere else, they would have to import high-sulfur straight run oil from Europe, which could in turn limit flows from Europe to Singapore. In addition, the startup of Abu Dhabi National Oil Company’s 127,000 b/d residual fluid catalytic cracking unit at the Ruwais refinery in the UAE could cut supply of straight-run fuel oil in Asia.

ADNOC restarted the RFCC on February 5, which was hit by a fire in January 2017. Since January 2017, the company has sold four to five 90,000 mt straight-run fuel oil cargoes a month until February loading. Those cargoes are expected to disappear from the market from March following the restart of the RFCC. Crude prices on the other hand have been subject to volatility amid ongoing trade tensions between US and China and US sanctions on Venezuelan crude trade, traders said.

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Source: S&P Global Platts

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