Asia residue fuel market - Key market indicators this week

Singapore — As weak low sulfur fuel oil fundamentals weigh on Asian refiners' margins, a number of refiners have responded by reducing production.

In a continuing bid to boost profitability, many of the same refiners reducing LSFO output are simultaneously purchasing straight-run fuel oil cargoes to increase production of lighter distillates, which are experiencing a relatively faster recovery in demand compared to the LSFO bunker market.

MARINE FUEL 0.5% SULFUR

** The supply and demand fundamentals of Singapore Marine Fuel 0.5%S market remain weak as inventories in onshore terminals saw a three-year high on July 8. The Singapore residue stocks rose to 26.666 million barrels as of July 8, the highest since March 22, 2017, according to Enterprise Singapore data.

** As a consequence of the high inventory, regional refiners are trimming LSFO production due to poor cracking margins. South Korea's SK Energy is among those refiners planning to skip LSFO exports for July and August-loading as cracking margins haven't strengthened in line with expectations, according to a company source. Taiwan's Formosa Petrochemical Corp will also be skipping LSFO exports in July, a company source said.

** On the bunker side, ample market supply coupled with weak demand has led to a few suppliers lowering their offers to spur buying interest. Singapore-delivered Marine Fuel 0.5%S bunker premium to Singapore Marine Fuel 0.5% cargo, fell from a 17-week high of $36.08/mt on April 30 to $12.95/mt on July 9, Platts data showed.

** In the Northeast Asian bunker market, the number of ships bunkering at Hong Kong is expected to dwindle due to competition from China, which is expected to cap low sulfur bunker prices in the city. The Hong Kong delivered marine fuel 0.5% differentials to the FOB Singapore 10 ppm gasoil cargo assessment was down 63 cents/mt on the week at minus $16.86/mt July 9.

** The Chinese bunker fuel market is expected to remain quiet as attractive price levels failed to draw any incremental demand. The Zhoushan delivered marine fuel 0.5% differentials to FOB Singapore 10 ppm gasoil cargo dropped $7.13/mt week on week to minus $38.36/mt on July 9.

HIGH SULFUR FUEL OIL

** The 380 CST high sulfur fuel oil has been strong on Saudi Arabia's power demand. The 380 CST cash differential turned positive for the first time after three months. It was assessed at $3.73/mt on July 8, the highest since February 18. The market is expected to stay strong at least until end-July.

** The 180 CST HSFO also found support as demand from Pakistan and Bangladesh boosted as well. However, the demand was lower than Saudi Arabia's 380 CST purchase volume, resulting in narrower viscosity spread.

** In the downstream bunker market, supply was tight with one trader not offering any HSFO in the near-term. Consequently, the Singapore-delivered 380 CST bunker premium to Singapore 380 CST HSFO cargo assessments rebounded to $14.01/mt on July 9 from a 17-week low of $11.59/mt on July 3.