Australian Vincent crude quality improvement bears fruit as price differentials surge

Singapore — The quality improvement for Australia's Vincent crude since April has borne fruit as the heavy sweet grade's price differential jumped more than $5/b since the start of the second quarter, while relatively stable demand for clean bunker fuel continued to support the low sulfur fuel oil blendstock.

The quality of the heavy sweet crude grade had been improved earlier in Q2 making it more viable crude for blending into low sulfur fuel oil for clean mariner fuel suppliers across Asia.

Industry sources indicated that the flash point of the crude had been improved to make it blender friendly.

As a result, demand for the grade has significantly picked up in the refining and marine fuel sector.

Price differential for the heavy sweet crude has been rising steadily since May 2020 with the most recent spot trade having concluded at a lofty premium of around $8/b to Platts Dated Brent on a FOB basis for a September loading cargo, market sources said.

Australia's Pyrenees and Van Gogh crudes have long been seen as two standout heavy sweet grades available in the Asian market ideal for blending into low sulfur marine fuels due to their rich fuel oil yield, very low sulfur content and unique specifications such as low pour point and high flash point.

The quality improvement for Vincent now makes it directly compete with the existing heavy sweet crude grades Pyrenees and Van Gogh, fuel oil and bunker traders said.

Earlier in July, a September loading cargo of Pyrenees was sold by BHP to a trader at a premium of around $8/b to Platts Dated Brent on a FOB basis, traders said.

"Vincent quality is better now making it a very stable and attractive crude for blending, " said a Singapore-based fuel oil trader.

On July 29, September loading price differential for Vincent crude was assessed at $8.1/b, the grade's highest spot premium since $8.20/b on January 31, Platts data showed.

LSFO demand supported

While high sulfur fuel oil demand has picked up in some ports recently, demand for low sulfur fuel oil will stay elevated, thanks to environmental regulatory rules in international shipping, bunker industry sources said.

In June, sales of Marine Fuel Oil 380 CST in Singapore, the world's largest bunkering port, rose 8.68% on the month to 744,700 mt, preliminary estimates from the Maritime and Port Authority of Singapore released July 13 showed. This was the highest monthly sales recorded so far in 2020.

Meanwhile, low sulfur bunker fuel sales were 0.11% lower on the month to 2.711 million mt in June, the MPA data showed.

"Some people had planned scrubber installations on their vessels earlier and those ships have come to the market now," a maritime research analyst said, adding that this was propping up HSFO demand.

"These are just nuances and LSFO demand will stay strong," he added.

A bunker trader resonated a similar sentiment adding that "VSLFO is not too much more expensive than HSFO," and that the narrow spread between the two grades would likely put a lid on scrubbers uptake and consequently HSFO demand.

The spread between Singapore delivered Marine Fuel 0.5% fuel and Singapore delivered fuel oil 380CST has declined from an average of about $298.9/mt in January to average around $69.39/mt from July 1-29, Platts data showed.