Australia's Vincent crude premiums hit record high amid strong LSFO demand

Singapore — Spot premiums of Australia's Vincent crude hit a new record amid strong demand for low sulfur marine fuel, trade sources said.

Two 550,000-barrel cargoes of Vincent crude for March-loading were heard to have traded at premiums of around $11.50/b to Platts Dated Brent crude assessments, FOB, much higher compared to the high-$9s/b premiums heard for February-loading barrels, Asian sweet crude trade sources with close knowledge of the spot market deals told S&P Global Platts.

The spot premiums for the crude, which has an API gravity of 19 and a sulfur content of 0.15%, were the highest-ever recorded, according to Platts data.

Resilient product cracks in the marine fuel oil 0.5% sulfur market has boosted demand for the heavy sweet crude for fuel oil blending. The second-month marine fuel oil 0.5% swap crack versus Dubai crude swap averaged at $9.76/b from Feb. 1 to Feb. 10, up 15% from $8.46/b average over the whole of January, and the highest since February 2020, Platts data showed.

Northeast Asia's marine fuel demand, especially from the container shipping sector, has been quite robust in recent months as the region's exports of manufactured goods surged, in line with a sharp increase in global online shopping activity, as well as growing consumer demand for remote-working electronic and tech devices during the prolonged coronavirus pandemic, South Korean shipping industry sources and analysts told Platts.

South Korea's exports in December 2020 jumped 13% year on year, marking the highest growth since 22.5% increase in October 2018, government data showed. China's December goods and services exports rose 18.1% from a year earlier, beating expectations for a 15% rise.

The rise in premiums for Vincent could also be attributed to a knock-on effect of a cold snap in North Asia. The scenario saw LNG prices rallying to record highs, pushing up power demand from alternative feedstock including low sulfur fuel oil and crude oil, said a Singapore-based fuel oil trader.

In addition, the tropical cyclone season in Australia, which occurs from November to April, has caused uncertainty to the loading program for the Australian sweet crude oil grades, with sources noting that Pyrenees may not be available for March loading, according to traders.

LSFO cracks bullish

Reduced low sulfur fuel oil production amid tighter availability of feedstock sweet crudes and a recent spike in marine fuel demand from the container shipping sector led to the Singapore Marine Fuel 0.5% crack spread hitting an 11-month high Feb. 9 at $15.02/b, Platts data showed.

The spread, measured as the difference between the Singapore Marine Fuel 0.5% front-month swap and the Dubai crude front-month swap, was last higher Feb. 21, 2020, at $15.06/b and has been on an uptrend since end-December, according to traders.

"The recent strength is more to do with reduced availability of low sulfur crude from the Americas to feed into Asian refineries, hence you don't see refiners raising their LSFO production even though margins are so good," said one Singapore-based fuel oil trader.

In addition to the relatively lower availability of low sulfur crude oil, Singapore traders have also pointed to fewer arbitrage volumes of fuel oil coming into Singapore in February, with current estimates at about 2.5 million mt compared to about 2.8 million mt in January.

The recent uptick in prices, however, has piqued western interest with additional European volumes heard making their way East to take advantage of the arbitrage economics.