Europe residual fuel -- Key market indicators this week

New York — In the light of countrywide lockdown and reduced transport globally, the European fuel oil market has not felt the demand destruction on the scale of jet and gasoline, and with it, the rush for floating storage. Shipping operations are still continuing albeit at reduced rates, with many optimizing onshore storage while keeping a close eye on floating economics.

Marine fuel 0.5%S

**0.5% sulfur marine fuel FOB Rotterdam barges were assessed at $149/mt Friday, a new low since S&P Global Platts started assessing the product in January last year.

**Combined stockpiles of very low and high sulfur fuel oil in land in Northwest Europe dropped 11.9% from the previous week's 21-month high, but remained relatively high at 1.36 mil mt.

**However, 0.5%S marine fuel arbitrage volumes expected to reach Singapore are 2 million-3 million mt in May, lower than the 3 million-4 million mt in April, traders said last week.

**With sources heard to be optimizing onshore storage for fuel oil products, this has led to reports of dirty tanker owners in the West of Suez region cleaning vessels to load clean petroleum products instead.

**Meanwhile in Russia, fuel oil exports in March rose 9.6% on the year to 2.813 million mt, according to energy ministry data, as weather conditions were better this year due to the mild winter. Russian exports remained largely unchanged on the month, up 0.6%, as refinery maintenance and river navigation only started toward the end of March.

**Bunker demand was broadly steady in Northern Europe, but however little bunker fuel this consumes, sources said there did seem to be a base level of demand. Prospects for this look unchanged in the week ahead.

**Russian bunker sales volumes were down 15.7% on the year in March, energy ministry data showed, due to uncertainty surrounding the introduction of an excise duty on fuel oil from April 1. Russia decided to introduce an excise duty on fuel oil and vacuum gasoil -- which are currently tax free -- in order to offset the impact on the budget of amendments to the so-called tax damping mechanism, which compensates producers for selling gasoline and diesel on the domestic market below export prices.

High sulfur fuel oil

**On the high sulfur fuel oil side, 3.5% FOB Rotterdam barges plummeted to its lowest levels in over 20 years Wednesday, assessed at $83.50/mt. Prices rose slightly by Friday to $84.75/mt.

**Reports of relative tight supply continued last week, as some suppliers were heard switching from HSFO production to focus on VLSFO supply, said traders. Tight HSFO availability was particularly evident in the bunkers market at South Africa's Durban port last week, where the country observes widespread lockdown. However, there were market reports of more product available in South Africa during the second half of May.

**The pricing premium of Rotterdam-delivered 0.5%S bunker fuel over 3.5%S bunker fuel -- an indicator for scrubber investment economics -- was assessed at $43/mt Friday, hovering around record lows. "Platts Analytics previously projected 3,500 scrubber installations globally by the start of 2021, but this will likely not be met with disruptions from coronavirus and cancellations due to the narrowing price spread between high and low sulfur fuel," Alexander Yap, senior analyst at Platts Analytics, said.

Derivatives

**Forward curves for all fuel oil products saw a steepening of their contango structure in the prompt towards the end of last week, giving greater support to storage economics.

** VLSFO cracks were assessed at $0.543/b Friday, marking the lowest value since the assessment began in May last year.

Feedstocks

**VGO markets continued to see dampened demand across Europe due to weak gasoline and gas oil cracks leading to FCC shutdowns.

**Eyes are turning to freight rates in the Mediterranean, as Handysize Black Sea-Med rates nearly doubled Friday following reduced tonnage in the region.