- Refining Margins Under Pressure as Supplies Surge, Demand Slumps.
- Singapore’s Marine Fuel Crack Spread Hits Multi-Year Lows.
- Weak Seasonal Demand Weighs on LSFO Market.
Asia’s low sulfur fuel oil (LSFO) refining margins have fallen to their lowest in more than 19 months, weighed down by high supply and poor downstream demand. The Platts front-month crack of Singapore marine fuel 0.5% sulfur to Brent crude was valued at $7.52 per barrel on March 10, following a decline to as low as $7.20 per barrel on March 7. This is a record low since July 21, 2023, when it was valued at $7.19 per barrel, reports S&P Global.
Seasonal Demand Slump Weighs on the Market
A Singapore-based trader pointed out that demand remains at its weakest point of the year, stating: “For the LSFO bunker side, we’re just centred around the lowest demand point of the year… March, April and even the overall summer, demand is quite low. So, in my opinion, if we don’t see any supply disruption within the region, I think this low point will continue to last for maybe another two or three months.”
The absence of demand, supported by a consistent influx of supplies, has continued to put pressure on the LSFO market. Some trade sources mentioned that despite the fact that the West-East arbitrage window is presently closed, previous shipments from the West that will be arriving in the next few weeks will inundate the market with heavy volumes, further burdening it.
Weak Bunker Demand Adds to Bearish Sentiment
The LSFO bunker market has been particularly soft, exacerbating the downward pressure on fundamentals. A fuel oil paper trader noted: “With the cracks at multi-year lows, it’s definitely a bearish mood at this moment.”
This bearish sentiment is indicated by the Platts M2 and M3 Singapore marine fuel 0.5% sulfur crack spreads versus Brent crude, which have both dropped to 1.5-year lows. The M2 and M3 LSFO cracks were valued at $7.49 per barrel and $7.59 per barrel, respectively, levels last seen on Oct. 5, 2023.
Economic Issues and Worldwide Headwinds Weigh on Market Sentiment
Market sentiment has been further subdued by worldwide economic headwinds, such as stagflation concerns. An economic source affirmed that economic uncertainty continues to weigh on LSFO fundamentals, further contributing to the prevailing supply-demand imbalance.
Despite the weak outlook, some traders believe that lower prices could stimulate buying interest. One trader noted: “Maybe the low flat price can spur some bunker demand.”
Singapore’s LSFO Cargo Market Experiences Pricing Squeeze
Platts valued Singapore marine fuel 0.5% sulfur cargo’s spread above the Mean of Platts Singapore marine fuel 0.5% sulfur at a discount of 83 cents per metric ton on March 10. Though this was up slightly day on day, it remained close to its lowest point since April 2024, which was last seen in the week ended March 7.
Singapore, the global largest bunkering centre, has experienced modest LSFO bunker request volumes recently because of a change in demand towards China. Nevertheless, Singapore hub sellers have reacted by presenting competitive prices on most trading days to occupy barge slots and clear excess inventory piles.
Hi-5 Spread Narrows as LSFO Weakens
The lingering weakness in LSFO has narrowed the spread between Singapore’s 0.5% sulfur marine fuel oil and high sulfur fuel oil (HSFO), also referred to as the Hi-5 spread. The spread narrowed by about 48% in March to $22.31 per metric ton on March 10. It was valued at $21.46 per metric ton on March 7—the lowest since the International Maritime Organization’s (IMO) 2020 sulfur rule came into effect in January 2020.
These rules ask ships to burn fuels that have no more than 0.5% sulfur unless they carry exhaust-cleaning scrubbers. The narrowing Hi-5 spread is a function of LSFO’s comparative weakness versus HSFO, which has remained in healthier demand.
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Source: S&P Global
