Europe and Africa residual fuel -- key market indicators this week

London — Repeated price support for 0.5%S marine fuel in the European market from Singapore's demand pull is unclear in the coming weeks, as Asia-based traders expect higher Westerly arbitrage volumes on the month. This comes as stock levels in the Northwest European region have already hit multi-month highs and demand remains relatively thin. The European 0.5%S marine fuel crack, however, continues to see support.

Marine fuel 0.5%S

** Rotterdam 0.5%S Marine Fuel FOB barges finished the week to be assessed at $452.75/mt on Feb. 12, up 1.8% week on week.

** Local European demand has been heard thin, while a pull east has lent support to lower sulfur fuel oils such as 0.5%S marine fuel and 1%S fuel oil.

**However, Asia-based traders cited a toppish market which are likely to taper in the coming days, amid higher arbitrage volumes from the West. Market sources estimate western arbitrage low sulfur material to the tune of around 3 million mt to arrive in Singapore for March, up from around 2.5 million mt estimated for February-arrival.

** The FOB Rotterdam 0.5%S fuel oil barge crack was assessed at $9.57/b Feb.12, down from $9.99/b Feb. 8, which brought it close to levels not seen since February 2020 when the coronavirus pandemic had hit. The 0.5%S marine fuel crack continues to hold its position as the most supported transport fuel crack in Europe.

** Supply for lower sulfur fuel oil products continue to be hampered by reduced refinery runs in Europe, providing support to product cracks.

** However, combined in-land inventories of very low and high sulfur fuel oil in land in the Amsterdam-Rotterdam-Antwerp region rose 18% on the week to 1.677 million mt in the week to Feb. 10, Insights Global data showed. Inventory levels are at the highest levels since June 2020, the data showed.

** The bunkers market reported some tightness in 0.5%S marine fuel availability on the prompt in the week to Feb. 12 due to Antwerp strikes and various other factors, but the market continues to see lackluster demand for bunkering. This meant that supply was still sufficient to meet demand, sources said.

** Mediterranean bunker demand was cited between good and sluggish in week to Feb. 12, with weather issues adding complexities to market conditions.

High sulfur fuel oil

** Rotterdam 3.5% fuel oil barges on an FOB basis finished the week to be assessed at $346.50/mt Feb. 12, up 2.9% on the week.

** Support in the fuel oil market remains limited to lower sulfur counterparts, with the Hi-5 spread maintaining triple digits. The Hi-5 spread, which is the difference between 0.5%S FOB Rotterdam barges against 3.5%S FOB Rotterdam barges, widened to $111.75/mt on Feb. 9, S&P Global Platts data showed, its highest level since March 23, 2020, when it was only 50 cents/mt higher. The spread was last assessed Feb. 12 at $106.25/mt.

** Demand for 3.5%S fuel oil in Europe remained to be heard muted while supply is thin with ongoing refinery run cuts in Europe. "Bunker demand is stable. Saudi [Arabia] is yet to increase demand," a source said, adding: "There is lower demand from the US for cracking."

** The spread in the delivered bunkers market averaged $105.4/mt in the week to Feb. 12, up $5.40/mt from a week ago. Reasons for this have been linked to relative price support in the VLSFO market compared to HSFO.

Feedstocks

** Feedstock storage facilities in the Northwest Europe region were heard to be nearing capacity, with "prime quality VGO garnering no interest" according to one trader. The backwardated structure of the vacuum gasoil market also makes it uneconomical to build more storage.

** Low sulfur vacuum gasoil was heard to be directing into the low sulfur fuel oil blending pool, in order to meet demand for Asian power generation.

** Domestic European demand for feedstocks has been heard lower due to falling FCC and hydrocracker margins.