Asia residual fuels: Key market indicators for May 4-6

The Singapore fuel oil market is expected to hold firm both in low- and high-sulfur grades in the May 4-6 trading week due to tight supply.

Singapore marine fuel 0.5%S is expected to see a similar volume of arbitrage cargo flow to the West with the European market also experiencing supply tightness. High sulfur fuel oil supply is also not sufficient due to strong demand from South Asia, market sources said.

Crude oil futures opened higher in Asia on May 4, with July ICE Brent trading at $105.78/b at 0300 GMT, down from $108.07/b at the Asian close April 29.

Marine fuel 0.5%S

** Marine fuel 0.5%S market structure slipped as the June-July spread was pegged at $20/mt as of 11 am Singapore time on May 4, down from $21.25/mt on April 29. Despite weaker timespread, market sources said supply is likely to remain tight as a cargo inflow from the West in May stays low.

**Singapore is expected to receive about 1.6-1.7 million mt of low sulfur fuel oil cargoes in May, compared with 2-2.5 million mt of typical monthly bunker sales.

**In the downstream bunker market, premium for the Asian downstream low sulfur bunker fuel market was likely to remain capped, if not inch lower, from prevailing levels as the market goes into trading product deliverable over the second half of May.

** The premium for Singapore-delivered marine fuel 0.5% bunker averaged $33.32/mt in the week ended April 29, largely steady from the previous week's average of $32.91/mt, while the same for product sold on an ex-wharf basis averaged $24.52/mt, up marginally from the previous week's average of $24.11/mt, S&P Global Commodity Insights data showed.

**A still-prevailing steep backwardation at the front of the Singapore marine fuel 0.5% swaps curve was also likely to instigate sellers in the downstream market -- especially those that offer product on an ex-wharf basis -- to make competitive offers in a bid to move oil, traders said.

** As some supplies in Hong Kong have reportedly oversold volumes, the arrival of LSFO replenishment stocks late during the week ended April 29 is likely committed for existing bunker fixtures. Hence, traders only expect the subsequent arrival of a supplementary LSFO shipment around mid-May to ease bunker premiums, while inventories remain tight in the meantime.

** Extensions to delivery lead times are likely to taper the strong LSFO bunker demand at Zhoushan, as local customs offices scale back operating capacities amid April 30-May 4 public holidays that is likely to delay documentation processes for bunker operations, according to local bunker suppliers.

High sulfur fuel oil

** The 180 CST demand is expected to remain firm even though Bangladesh's purchase is expected to decline in May. Pakistan is buying 180 CST HSFO continuously for May delivery, said fuel oil traders.

** Asian straight-run fuel oil market has strengthened as a result of a surge in demand from the US refiners, which are buying the straight-run grade from the Middle East, market sources said. "FOB values of Middle Eastern straight-run fuel oil cargoes have jumped. Buying heavy crude oil is [economically] better [for Asian refiners]," said a fuel oil trader based in Singapore.

** But in the high sulfur bunker market, there were initial indications that the premium -- over Singapore 380 CST high sulfur fuel oil cargo assessment -- for 380 CST bunker fuel delivered in Singapore was likely to taper off from the multi-year highs that it had reached in the recent past.

** In initial signs that the market had likely peaked with the premium for Singapore-delivered 380 CST high sulfur bunker at a near 30-month high in end-April, the differential -- which had surged to an average of $81.38/mt in the week ended April 22, up from the previous week's average of $57.13/mt -- only inched up to an average of $82.9/mt in the week ended April 29, S&P Global data showed.

** In China, traders anticipate dwindling HSFO stockpiles at the ports of Shanghai and Zhoushan to lift bunker premiums amid a less competitive downstream market, as fewer suppliers are still actively offering out parcels on delivered basis.

** Hong Kong-delivered HSFO bunker premiums are likely to stay buoyed in the near term owing to tight inventories, while traders expect scarce competition in the ex-wharf market as only one of the oil majors has reportedly sourced for mid-May arrival cargoes from the port of Singapore.

** Bunker suppliers expect Japan's HSFO stockpiles to tighten slightly amid limited ex-wharf parcels for loadings during the week that began May 2, as closures of customs offices during Golden Week holidays delay documentation procedures.