Asia residue fuel market - Key market indicators this week

Singapore — The Asian residual fuel market was expected to garner support this week, if not see any significant uptick, from current levels.

After weeks of trading at a near double-digit contango at the front of the residual fuel oil swaps curve, indicating a market that was inundated with supply, a gradual weakening of the contango market structure is what most traders have their eye on in the ensuing days.

This was attributable to a slight respite from the supply overhang due to lower arbitrage inflows, which led to a drawdown in stockpiles, especially low sulfur material stored on floating storages. The volume of low sulfur products stored on floating storages around Singapore is estimated to have dropped to around 4.2 million mt currently, down from its peak of nearly 5.5 million mt at the time of the market transitioning to IMO 2020 in January.

Meanwhile, with crude markets buoyed by improving sentiment and fundamentals, traders expect some lag before high sulfur fuel oil margins are able to catch up, as indicated by the declining fuel oil crack spread values from the front-month Dubai crude swap for both low sulfur fuel oil and HSFO.

MARINE FUEL 0.5%S

** Reflecting an underlying sentiment that the market was expected to trade steady to firm in the ensuing days, the market structure at the front of the Singapore Marine Fuel 0.5%S swaps curve was heard pegged at levels unchanged from its assessment at minus $6/mt at the Asian close Friday, said broking sources.

** Still, with 0.5%S marine fuel traded prices largely influenced by the Singapore 10 ppm sulfur gasoil market, prompt-month Singapore Marine Fuel 0.5%S swaps is expected to gain in line with gasoil, and indirectly also from a firming crude, said traders, who expect a firming gasoil structure to support the Marine Fuel 0.5%S structure.

** The fallout from Singapore-based oil trader Zenrock Commodities' financial issues has been limited, with no significant impact on market fundamentals and prices thus far, said traders. HSBC, one of Zenrock Commodities' lenders, said in an affidavit dated May 1 and seen by S&P Global Platts Friday, that the company secured financing from multiple lenders by pledging the same cargo of crude oil several times over and duplicating invoices with different payment instructions.

** On the end-user side, market sources expect Singapore marine fuel 0.5%S bunker premiums to hover at current levels this week as demand stabilizes. The Singapore-delivered Marine Fuel 0.5%S bunker premium to Singapore Marine Fuel 0.5%S cargo, which touched a nine-week high at $36.08/mt on April 30, dropped to $15.11/mt Friday, showed Platts data.

** Inquiries from traders looking for replacement deliveries for Ocean Bunkering Services' canceled orders have waned as most of these orders have been replaced, while some shipowners have been choosing to bunker at Hong Kong instead of Singapore as prices there have been more competitive, said traders about the recent drop in premium for the mainstay Singapore-delivered marine fuel 0.5%S bunker.

** In the Middle Eastern bunkering hub of Fujairah, demand for the IMO-compliant marine fuel is expected to remain mixed in the near term, said traders. UAE-based traders expect lackluster demand for prompt and mid-May delivery dates as most shipowners have ample inventories for those dates, while demand is expected to be supported for later dates.

HIGH SULFUR FUEL OIL

** While refining cracks across the complex strengthened in line with an uptick in demand and as refinery cuts across the region took effect, the Singapore 380 CST HSFO crack, measured against the front-month Dubai crude swap, declined to minus $5.59/mt at the Asian close on Friday, the lowest since it touched minus $6.36/mt on March 12, showed Platts data.

** Still, a recovery in demand from the northeast Asian markets after holidays last week is expected to prop up the market in the week ahead, said traders.

** Reflecting this slight optimism was the market structure at the front of the Singapore 380 CST HSFO swaps curve, which was heard trading at levels unchanged from its assessment at minus $12.75/mt Friday, while the June/July swap was heard trading slightly firmer at minus $8.25/mt, up from its assessment at minus $8.50/mt Friday, said broking sources.

** The erstwhile mainstay Singapore-delivered 380 CST bunker premium is expected to be supported in the absence of Ocean Bunkering Services in the market, said sources. The Singapore-delivered 380 CST bunker premium to Singapore 380 CST HSFO cargo was assessed at $17.47/mt on Friday, 42.7% higher than a nine-week low at $12.24/mt on April 6, showed Platts data.

** In the north Asian bunkering hubs of South Korea and Japan, lean supply for high sulfur bunker fuel coupled with rising demand from scrubber-installed ships are supporting bunker differentials, said traders. Only one refiner was supplying IFO 380 CST bunker fuel in South Korea, while in Japan, supply is expected to be tight on refinery run cuts. Tokyo Bay-delivered IFO 380 CST bunker fuel premium averaged $41.13/mt last week, compared with $27.14/mt in April. The same premium for similar grade bunker delivered in Ulsan and Busan in South Korea averaged $76.32/mt last week, compared with $64.58/mt in April. The HSFO market is expected to remain firm as more ships emerge that have completed scrubber installations.

** Meanwhile in Shanghai and Hong Kong, a supply overhang was expected to pressure marine fuel 0.5%S bunker premiums. In China, inventory remains high even as suppliers slash prices to attract demand, while in Hong Kong, a slight uptick from the demand shift away from Singapore has done little to lift premium, said traders. Shanghai-delivered marine fuel 0.5%S bunker premium to the benchmark Singapore Marine Fuel 0.5%S cargo dropped 35% week on week at $20.11/mt Friday, while in Hong Kong, it was down 42% week on week at $15.11/mt Friday, showed Platts data.