Asian LSFO crack falls to over 19-month low on weak demand, ample supplies

Asia's low sulfur fuel oil refining margins plunged to their lowest level in over 19 months, weighed down by abundant supplies and weak downstream demand.

The Platts front-month crack spread for Singapore marine fuel 0.5% sulfur against Brent crude was assessed at $7.52/b on March 10 and dropped to as low as $7.20/b on March 7, its lowest since July 21, 2023, when it was assessed at $7.19/b.

Although the front-month marine fuel crack for April inched up on March 10, it was still about 12% lower than at the end of February. The crack spread has averaged $7.83/b so far in March, down from the February average of $10.84/b, Platts data showed.

"For the LSFO bunker side, we're just centered around the lowest demand point of the year... March, April and even the overall summer, demand is quite low. So, in my opinion, if we don't see any supply disruption within the region, I think this low point will continue to last for maybe another two or three months," a Singapore-based trader said.

Although the West-East arbitrage window was currently shut, earlier fixtures arriving in the upcoming weeks will make the market grapple with heavy volumes of Western supplies in March and that was one pivotal factor weighing on the market, several trade sources said.

A fuel oil paper trader had attributed the softness to the weak bunkers delivered market, weighing on fundamentals.

"[With the cracks are at] multi year lows, it's definitely bearish mood at this moment." another fuel oil paper trader said.

Meanwhile, the Platts M2 crack spread for Singapore marine fuel 0.5% sulfur against the same-month Brent crude and the Platts M3 crack spread for Singapore marine fuel 0.5% sulfur against the same-month Brent crude have both dipped to 1.5-year lows of $7.49/b and $7.59/b, respectively.

The M2 and M3 LSFO cracks were both last lower on Oct. 5, 2023, when they were assessed at $7.28/b and $7.13/b, respectively.

A market source added that market sentiments were further depressed due to economic headwinds and stagflationary concerns plaguing global markets.

However, some traders were optimistic and said that buying interest could climb as prices remain competitive.

"Maybe the low flat price can spur some bunker demand," a trader said.

Platts assessed the Singapore marine fuel 0.5%S cargo's differential over Mean of Platts Singapore marine fuel 0.5%S assessment at a discount of 83 cents/mt at the Asian close March 10, inching higher day over day, but still holding near its lowest level since April 2024 touched in the week ended March 7, Platts data showed.

Bunker traders around the world's largest bunkering hub, Singapore, expect limited LSFO bunker inquiries in the near term, owing to recent demand shifts to China. However, sellers around the Singapore hub have been offering quite competitively on most trading days to fill barge slots and reduce stockpiles.

The persistent weakness in LSFO fundamentals and the relative strength of high sulfur fuel oil amid robust demand has dampened the spread between the Singapore 0.5%S marine fuel oil and the benchmark HSFO cargo, also known as the Hi-5 spread.

Platts data showed that the Hi-5 spread, which has narrowed about 48% so far in March, was assessed at $22.31/mt on March 10. The spread was assessed at $21.46/mt on March 7, the lowest since the International Maritime Organization (IMO) 2020 regulations came into effect in January 2020. These regulations restrict ships to use fuels containing no more than 0.5% sulfur unless they are equipped with exhaust-cleaning "scrubbers."