Asia Residual Fuels: Key Market Indicators for Dec. 6-10

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Supply tightness in Singapore in the marine fuel 0.5% market is expected to persist in the week of Dec. 6-10, according to local Singapore sources, amid a shortage of blending components to produce on-specification fuel oil, says an article published in Platts.

In contrast, supply is more assured in the high sulfur fuel oil market as demand from the regional utilities sectors in South Asia falls.

Morning discussions for the January ICE Brent futures contract were trading at $71.38/b at 0230 GMT December 6, 50 cents/b lower from the 0830 GMT Dec. 3 level of $71.88/b, Intercontinental Exchange data showed.

Marine Fuel 0.5%

Discussions for the Singapore Marine Fuel 0.5%S December/January spread Dec. 6 declined from the Dec. 3 assessment of $19.50/mt to $18.50/mt, with the spread bid at $17.50/mt against an offer at $18.75/mt, according to Intercontinental Exchange data.

Supply tightness in first half December for VLSFO looks set to continue in the second half as well, according to Singapore traders, with no November-loading barrels of VLSFO blending components from Africa, expected to arrive in Singapore in December.

The tighter supply situation in Singapore saw the cash differential of the FOB Singapore marine fuel 0.5% assessment climb to $22.60/mt Dec. 2, Platts data showed, the highest level in 21 months, before marginally declining to $22.40/mt Dec. 3.

This had a cascading effect on the downstream Singapore marine fuel 0.5%S bunker market too, especially for product loading on an ex-wharf basis in H1 December, where only a few sellers had oil to offer to the spot market.

The few suppliers with oil have in the recent days offered Singapore ex-wharf marine fuel 0.5%S at a premium of around $30/mt, if not higher, compared to a premium of $10-$11/mt at which sellers offered on an ex-wharf basis for balance month dates going in to H2 November..

The premium for Singapore ex-wharf marine fuel 0.5%S bunker — to Singapore marine fuel 0.5%S cargo rose to a 19-month high of $23.55/mt on Dec. 2, but fell $2.32/mt on the day to be assessed at $21.23/mt on Dec. 3.

In North Asia, Hong Kong marine fuel 0.5%S bunker demand is expected to decline as the government tightened COVID-19 regulations early-December, adding Australia and Japan, among other countries, to its Group A category, according to the government’s website Dec. 1.

Ships are required to complete 21 days of quarantine when coming from Group A countries for bunker-only calls. Demand from ships on bunker only calls is thus likely to fall in December, according to local traders.

Zhoushan meanwhile is expected to remain well supplied as local refiners still have some portion of their export quotas left for 2021.

Supply tightness in Singapore is not impacting Zhoushan bunker market, as Zhoushan seldom imports low sulfur fuel oil cargoes from Singapore, bunker suppliers in Zhoushan said.

High sulfur fuel oil

Discussions for the December 380CST high sulfur fuel oil East/West spread rose Dec. 6 to $19.75/mt, up from the Dec. 3 assessment of $18.45/mt, according to Intercontinental Exchange data.

The fortunes of Asia high sulfur fuel oil are expected to remain subdued in the near term as demand for the product as a burning fuel from the utilities sector winds down further, amid lower temperatures in South Asia.

Traders however, are keeping an eye on the possibility of increased demand from Bangladesh in the months ahead, should the country not manage to bring online in time its FSRU that saw its operations suspended late-November, putting pressure on its LNG, and by extension utilities demand.

Reflecting a not too optimistic sentiment, the cash differential for both 380 CST HSFO and the lower viscosity grade 180 CST HSFO fell to a near six-month low of minus $1.25/mt and minus $1.42/mt respectively on Dec. 3, Platts data showed.

A weakening of the upstream market did have a cascading effect, but not as pronounced on the downstream Singapore 380 CST ex-wharf and delivered high sulfur bunker fuel market. The spot premium — over Singapore 380 CST HSFO cargo — for both these grades inched 23 cents/mt lower in the week ended Dec. 3 to average $3.02/mt and $11.02/mt respectively, Platts data showed.

In North Asia, unlike Singapore, Japan is expected to see supply tightness in high sulfur bunker fuel at least until January. Power utilities have been raising high sulfur fuel oil purchase, which reduced supply to bunker market, industry sources said.

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Source: Platts

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