ASIA RESIDUAL FUELS: Key market indicators for Aug 1-5

The Asian low sulfur fuel oil market was unlikely to witness further significant downside pressure from prevailing levels, as the demand-supply situation was likely to remain balanced, at best, in the near term.

Even so, the market was likely ease going into the second half of August as regional refiners ramp up supplies and higher arbitrage flows into Singapore.

The Asian high sulfur fuel oil market, on the other hand, was likely to garner support in the near term on optimism that demand may see an uptick from the utility sector, especially in the West, where high gas prices have turned focus on alternative burning fuels.

Morning trades for the October ICE Brent futures contract were seen at $102.99/b at 0345 GMT on Aug. 1, down from $103.24/b at 0430 GMT on July 29, Intercontinental Exchange data showed.

Marine Fuel 0.5%

**Underpinning supportive trading sentiment was the market structure at the front of the Singapore marine fuel 0.5 swaps curve, which, according to brokers, was pegged at $41.75/mt in mid-morning trades, up from its assessment of $40.5/mt at the 0430 GMT Asian on July 29.

**Reflecting an easing of the upstream market -- the premium for benchmark Singapore marine fuel 0.5%S cargo over the Mean of Platts Singapore marine fuel 0.5%S assessments has slumped from a record-high of $85.81/mt on July 14 to $48.4/mt in the week ended July 29 -- the downstream low sulfur bunker fuel market was, however, likely to witness further downward pressure in the near term, traders said. Singapore-delivered marine fuel 0.5%S bunker premium over benchmark Singapore marine fuel 0.5% cargo touched a record-high of $117.85/mt on July 20, but finished the week ended July 29 lower at $67.74/mt, S&P Global Commodity Insights data showed.

**Low sulfur bunker fuel premium at Fujairah was, however, likely to be firm in the near term as spot market activity was expected to only limp back to normalcy over the course of the week started Aug. 1 after inclement weather in the week ended July 29 had disrupted bunker delivery operations at the Middle Eastern port, traders said. The premium for Fujairah-delivered marine fuel 0.5%S bunker over Singapore marine fuel 0.5% cargo surged $20.76/mt on the day to finish the week ended July 29 at $97.74/mt, S&P Global data showed.

**In a bid to draw regional LSFO demand amid rising stockpiles, traders anticipate intensifying competition in Zhoushan's downstream market to pressure delivered bunker premiums in the near term.

**Below-average demand for LSFO in South Korea is expected to weigh on bunker premiums amid adequate inventories with no lack of offers for the delivered grade, even as at least two of the local refiners reportedly almost sold out inventories for early-August fixtures.

**The limited LSFO stockpiles led most sellers in Japan to prioritize term contractual nominations despite above-average volumes of spot inquiries, while some suppliers also expect Typhoon "Songda" to affect bunkering operations around Kyushu and possibly at Tokyo Bay too, market sources said.

High sulfur fuel oil

**Reflecting a near-term optimistic sentiment for the Asian HSFO market, the market structure at the front of the Singapore 380 CST HSFO swaps curve, broking sources said, was pegged at around $5.5/mt in mid-morning trades, up from its Asian close of $4.95/mt July 29.

**Determined buying interest has led the cash differential for Singapore 380 CST HSFO cargo over the Mean of Platts Singapore 380 CST HSFO to average a premium of $3.67/mt in the week ended July 29, up from 14 cents/mt in the previous week.

**The downstream 380 CST high sulfur bunker fuel market also reflected an uptick in the upstream market, as the premium for Singapore-delivered 380 CST bunker rose to average $16.65/mt in the week ended July 29, up from the previous week's average of $16.04/mt.

**Amid rising arrivals of container liners calling at South Korean ports, which strengthened HSFO bunker demand, local bunker suppliers expect higher inflows of HSFO imports to slow the inventory drawdowns.

**Despite slower demand for South Korea's HSFO bunkers for early-August delivery dates compared to the same period in July, traders expect slightly higher inflows of HSFO imports than previous months to supplement inventories amid refiners reportedly cutting production levels.

**Ample HSFO stockpiles and healthy availability of barges are likely to weigh on bunker premiums at the port of Hong Kong, even though the pace of demand is expected to remain largely steady during the week started Aug. 1, market sources said.

**HSFO inventories in China is expected to remain adequate amid expectations of incoming replenishment stocks during early-August, whereas weather risks could lead buyers to defer bunker demand, according to traders.