Asia residual fuels: Key market indicators for Feb. 28-March 4

After the Russian invasion of Ukraine roiled oil markets in the week ended Feb. 25, market traders in both high sulfur and low sulfur fuel oil markets remained cautious about a possible impact to Asia over Feb. 28-March 4.

"Russia has been exporting less recently, and there hasn't been too much coming to Singapore so far in 2022, compared to 2021," said a Singapore-based trader.

Sources dealing in both products said in the near-term, most companies were adopting a "wait-and-see" approach, with the possibility of further sanctions looming.

Morning discussions for the April ICE Brent futures contract were trading at $101.76/b at 0300 GMT Feb. 28, up from the 0830 GMT Feb. 18 level of $101.59/b, Intercontinental Exchange data showed.

Marine Fuel 0.5%

** The Singapore Marine Fuel 0.5%S March/April spread Feb. 28 surged to $22.75/mt from the Feb. 18 assessment at $21.20/mt, according to brokers' discussions, with the spread bid at $22.50/mt against no offers in response, according to Intercontinental Exchange data.

** The risk of disruptions to low sulfur fuel oil supplies at Fujairah is deemed unlikely amid the Russia-Ukraine conflict, as local refineries mostly source feedstock from South Sudan, according to local traders.

** Despite relatively brisk LSFO bunker demand at Fujairah during the week ended Feb. 25, crude oil price volatility amid the Russia-Ukraine conflict could potentially subdue demand in the ensuing days, according to local bunker suppliers.

** As the Singapore ex-wharf marine fuel 0.5%S for term contractual supply in March were done at $19-$20/mt premiums to FOB Singapore Marine Fuel 0.5%S cargo assessments, rangebound from the $16-$20/mt premiums inked for February's supply, tepid demand is expected to cap premiums of the delivered grade to pressure margins, traders said.

** In North Asia, the Zhoushan market is expected to see ample supply as local refiners have begun ramping up low sulfur fuel oil production amid persistently higher margins.

** The Chinese government issued 6.5 million mt of export quota as the first batch of 2022, up 30% from 2021, as a result of which market traders expect domestic low sulfur bunker production to increase in 2022, although most felt that even with increased production, China would first look to meet domestic bunkering demand.

** The South Korean delivered marine fuel 0.5%S bunker market meanwhile, is also likely to be well supplied in March.

** Despite some refiners planning maintenance in March, South Korean refiners continue to stay active in selling spot bunker fuel, the traders said, with S-Oil set to maintain its March production volume at a similar level to February, according to a company source.

High sulfur fuel oil

** The Singapore 380 CST high sulfur fuel oil March/April spread was stable Feb. 28 at $2.25/mt from the Feb. 18 assessment at the same level, according to Intercontinental Exchange data.

** Mixed sentiments over the potential embargo of oil products from Russia were seen as some bunker suppliers were unperturbed amid ample HSFO inventories in Fujairah and supplies within the region, whereas others were wary of disruption to cargo flows, such as HSFO imports from the Black Sea port of Taman, market sources said.

** A slowdown in HSFO demand since February had led market participants at Fujairah to offer aggressively and undercut competitors to move oil cargoes, and is expected to persist amid the high outright price environment, according to traders.

** In North Asia, meanwhile, Japan's high sulfur bunker supply is expected to remain tight at least until the first half of March as power utilities continue to buy. The demand is likely to decline in the second quarter.