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Commodities 2021: Asia Marine Fuel 0.5%S demand expected to rise


Low sulfur bunker demand to reach pre-pandemic levels in Q2 2021

Supply to likely keep pace with rising demand

  • Author
  • Atsuko Kawasaki    Su Ling Teo    Rohan Menon    Rajesh Nair
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Oil Shipping

Singapore — Asian low sulfur marine fuel market is expected to witness gradual yet steady incremental demand growth in 2021, with sales likely to top pre-pandemic levels going into the second quarter of the year, market sources said.

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"Economic activities will recover in Q2, as vaccines for COVID-19 becomes increasingly available; low sulfur bunker demand will rise in line with a recovery in ship movements," a Singapore-based fuel oil trader said.

After operating at significantly low rates in the second quarter of 2020, the manufacturing industry has been ramping up operations in the second half, which had led to a recovery in marine fuel demand, another Singapore fuel oil trader said.

However, demand within the region was yet to recover to the pre-pandemic levels except at a few major bunkering hubs like Singapore and China. Demand has slumped in some of the North Asian ports like Hong Kong due to ongoing quarantine measures imposed on vessels calling the port for bunkering.

Singapore sold a monthly average of 4.14 million mt of bunker fuel over January-November 2020, up 5.9% from 2019, latest data available from the Maritime and Port Authority of Singapore showed.

"The IMO-2020 transition from HSFO to 0.5%S fuel had proceeded smoother and faster than many observers had expected. Added to this, bunker demand proved to be quite resilient against the impact of the pandemic," S&P Global Platts Analytics senior analyst Alex Yap said.


Even as incremental demand for low sulfur marine fuel is expected to inch higher, supply is also expected to rise. Refiners are broadly expected to increase run rates as demand for transportation fuels will likely grow as the global economy chugs back to normal due to the availability of coronavirus vaccines.

"As we see a stronger demand recovery, particularly into H2 2021, we expect that 0.5%S marine fuel supply will increase. However, cracks should improve in line with gasoil amid a wider oil demand and economic recovery in 2021," Yap said.

S&P Global Platts on Dec. 31 assessed the Singapore front-month 10 ppm gasoil/Brent crude spread, or the refining margin for the ultra low sulfur distillate fuel, at $5.47/b for January 2021, compared with $7.60/b for December 2021.

The same spread for front-month Singapore marine fuel 0.5%S versus prompt month Brent crude was assessed on Dec. 31 at $10.44/b for January 2021, compared with $11.31/b for December 2021.

Asian refiners had cut run rates to around 70% of capacity from Q2 2020 due to dwindling refining margins from poor demand for cleaner fuels. Still, given relatively better margins, refiners had enough capacity to produce low sulfur marine fuel, market sources said.

The overall demand-supply balance for Asia marine fuel 0.5%S bunker is expected to be more or less balanced over 2021, traders said.