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ASIA RESIDUAL FUELS: Key market indicators for Aug 15-19

The Asian low sulfur fuel oil market was expected to come under further pressure Aug. 15-19 from increasing regional supply and higher Western arbitrage flows, extending bearish sentiment from the first half of the month.

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The Asian high sulfur fuel oil market, on the other hand, was expected to be steady to firm on expectations of a surge in demand from both the utility sector, especially in the West going into peak winter buying season, and the end-user high sulfur bunker fuel market.

Morning trades for the ICE October Brent futures contract were seen at $97.28/b at 0400 GMT Aug. 15, down from $99.88/b at 0930 GMT Aug. 12, Intercontinental Exchange data showed.

Marine fuel 0.5%

** Underpinning weak sentiment was the market structure at the front of the Singapore marine fuel 0.5 swaps curve, which brokers pegged at $16/mt in mid-morning trade, down from $18.50/mt assessed at the 0830 GMT Asian close Aug. 12.

** The cash differential for Singapore marine fuel 0.5%S cargo to the Mean of Platts Singapore marine fuel 0.5%S assessment ended the week to Aug. 12 at a near 6-month low of $15.70/mt, S&P Global Commodity Insights data showed.

** Traders expect the premium for Singapore marine fuel 0.5%S cargo to weaken further in the week to Aug. 19 as supplies increase on the back of refiners in China and South Korea ramping up LSFO production.

** The downstream low sulfur bunker fuel market, especially in Singapore, was likely to be bogged down by a weakening upstream cargo market, Singapore-based bunker traders said. The premium for Singapore-delivered marine fuel 0.5%S bunker over Singapore marine fuel 0.5%S cargo finished the week ended Aug. 12 at $41.49/mt, still hovering around the 3-month low of $41.24/mt reached Aug. 10.

** In Fujairah, most sellers of IMO-compliant bunker fuel were still only able to offer product into the spot market for delivery 8-10 days forward as a backlog caused by inclement weather was yet to fully clear.

** Bunker suppliers at the North Asian bunker hub of Zhoushan were likely to offer low sulfur bunker fuel more aggressively owing to the recent slowdown in demand, while stockpiles of the delivered grade remain elevated, traders said.

** The delivered marine fuel 0.5%S bunker premium in South Korea was expected to come under pressure due to a supply overhang as local refiners maximize LSFO production.

** In Japan, demand and supply in the end-user bunker market was likely to be balanced as stockpiles of LSFO in August have reportedly risen above those in July. As such, current supply looks adequate to meet downstream demand for both spot and term commitments, Tokyo-based traders said.

High sulfur fuel oil

** Buoyed by optimistic sentiment for the near-term Asian HSFO market, the structure at the front of the Singapore 380 CST HSFO swaps curve was pegged at around $7.25/mt in mid-morning trade, broking sources said, up slightly from the Aug. 12 Asian close at $7/mt.

** Determined buying saw the cash differential for benchmark Singapore 380 CST HSFO over the MOPS 380 CST HSFO assessment rising to $14.83/mt at the Asian close Aug. 12, a level not seen since May 6, when it touched $18.33/mt.

** A strengthening upstream HSFO cargo market was also likely to support the downstream bunker fuel market. The Singapore-delivered 380 CST high sulfur bunker premium to Singapore 380 CST HSFO cargo closed the week ended Aug. 12 at $14.83/mt, a more than 3-month high. The differential was last assessed higher at $18.33/mt on May 6.

** The premium for Hong Kong-delivered high sulfur bunker fuel was likely to be supported by firm demand leading to a drawdown in stockpiles going into H2 August, traders said.

** Ample supplies of HSFO at Tokyo Bay were expected to weigh on the market, making high sulfur bunker fuel delivered there relatively competitive with neighboring North Asian ports, traders said.

** Elevated HSFO inventories in China were likely to pressure the downstream market even as the above-average demand seen since July was expected to continue into H2 August, local traders said.