Asia residual fuel - Key market indicators this week

Singapore — Asia residual fuel markets are expected to be supported in the week started Dec. 27, if not trading firmer than prevailing levels, as the market goes into trading second half January 2021 loading cargoes, traders said.

An optimistic sentiment was underpinned by expectations that the markets, especially low sulfur fuel oil, would remain balanced on steady demand going into the new year.

MARINE FUEL 0.5% SULFUR

** Market sources estimate Western arbitrage low sulfur material to the tune of about 2 million mt to arrive East for January 2021, down from anywhere between 2.5 million mt and 3 million mt in December.

** A drop in arbitrage inflows coupled with steady demand from the end-user bunker fuel market is expected to further draw down stock levels both on landed tanks in Singapore and on floaters off Singapore waters, said traders.

** Stocks of heavy distillates, including both low sulfur and high sulfur fuel oil, in Singapore landed storage fell to 20.394 million barrels in the week ended Dec. 23 -- a one-year low -- showed latest data by Enterprise Singapore. Singapore heavy distillates inventory was last lower at 20.239 million barrels in the week ended Dec. 25, 2019, the data showed.

** Reflecting a sentiment that the market was likely to be supported in the near term, the market structure at the front of the Singapore marine fuel 0.5%S intermonth swaps curve was trading at $1/mt in midmorning trade on Dec. 28, unchanged from its Asian close on Dec. 24, broking sources said.

** Since flipping into a contango at the start of December, the prompt intermonth Singapore marine fuel 0.5%S swap spread has widened further into positive territory on Dec. 22, S&P Global Platts data showed.

** On the end-user side, Singapore bunker suppliers are currently looking to meet spot demand for marine fuel 0.5%S bunker deliverable in the new year, as nearly all end-December requirements have been met, suppliers based in the city-state said.

** Marine fuel 0.5%S bunker premiums across major north Asian bunkering hubs are expected to remain supportive going into the first half of January 2021 too, said traders.

** Relatively thin availability after having wound down stocks for the financial year end, coupled with shipowners looking to meet their requirements afresh for product deliverable from early January onward, was expected to hold the markets in good stead.

** In South Korea's bunkering hubs of Ulsan and Busan, tight availability coupled with an additional "holiday premium" for product deliverable over the year-end holiday period led the premium for marine fuel 0.5%S over FOB Singapore marine fuel 0.5%S cargo to rise to $60.62/mt on Dec. 24, a 10-month high, S&P Global Platts data showed.

HIGH SULFUR FUEL OIL

** The upstream Singapore HSFO cargo market was expected to be relatively weak going into trading for H2 January-loading cargoes, said traders.

** Traders attributed a none-too-enthusiastic market sentiment to a drop in demand from the utilities sector within the region.

** Pakistan State Oil, one of the largest demand centers for HSFO within the region, had canceled a tender seeking 195,000 mt of 180 CST HSFO for H2 January delivery.

** Demand from other major HSFO buyers like Saudi Arabia and Bangladesh had also declined, market sources said.

** On the supply side, availability was expected to be ample going into the new year as refiners bump up run rates to capitalize on rising middle distillate refining margins, market sources said.

** Reflecting a drop in demand, especially from the upstream cargo market, the premium for Singapore 380 HSFO cargo over the Mean of Platts Singapore 380 CST HSFO assessments has averaged $1.35/mt so far in December, down from November's $6.43/mt, Platts data showed.