Singapore's low-sulfur marine fuel arrivals from West to rise in July: traders

Singapore's low sulfur fuel oil arrivals from Western markets are expected to rise in July after five consecutive months of decline ended in June, according to traders, who were optimistic that the recovering arbitrage inflows would help build the region's stockpiles after a sizable drawdown during the war in the Middle East.

The world's largest bunkering hub of Singapore is now expected to receive around 1.2 million-1.3 million mt LSFO from the West in July, multiple Singapore-based traders told Platts, part of S&P Global Energy, increasing from about 500,000-600,000 mt in June. Traders had initially estimated June arrivals at around 600,000-800,000 mt, Platts reported earlier.

The recent progress in US-Iran peace negotiations and the reopening of the Strait of Hormuz have shifted the oil market focus from supply risks to oversupply concerns, although trading sources and analysts have told Platts that it may take months to resume the usual flows due to the damage to infrastructure and tanker backlogs in the Persian Gulf.

"The prompt market, especially till July 11-12, will very tight ... H2 July onwards it should be better [in terms of supplies]," said one Singapore-based trader, adding that the market fundamentals will still stay supported and firm because "we have drawn too much" already. "But, the current strength will start to come down from H2 July onwards as the supplies come in."

"As of now, we are counting that July should see at least about 200,000-mt higher supplies than demand during the month ... For the first time in many months, we will likely see a build, although small," said another senior fuel oil trader. "Although there are arbitrage volumes that are expected to flow in ... They will only be in H2 July, and they are mostly blending components and not finished-grade supplies."

Amid the usual flows of medium sulfur components, some of which come from Brazil, Singapore is expected to see one low sulfur straight run fuel oil shipment from Nigeria, and about three Suezmax-sized cargoes from Northwestern Europe, according to traders.

The Singapore LSFO market, however, would likely still stay short of very low sulfur blendstocks in the coming weeks, and that would partly delay the availability of on-specification finished-grade materials coming to the market, traders said.

The spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, was assessed at $43/mt June 26, unchanged on the day.

The spread, which hit a record high of $165/mt on March 19, has since cooled off and was currently about 49% weaker compared with end-May levels, according to Platts data going back to April 2022, while traders said the recent narrowing of the East-West spread had made the arbitrage economics from Europe largely unviable in recent days.

The Singapore marine fuel 0.5%S cargo's cash differential over the Mean of Platts Singapore marine fuel 0.5%S assessment was at a premium of $23.41/mt at the Asian close June 26, posting a weekly decline of 21.5%, Platts data showed. The cash premium is currently at its lowest since April 29, when it was assessed at $22.58/mt, the data showed.

Meanwhile, the European VLSFO market has faced supply difficulties in June, amid a lack of blending components and some arbitrage loadings out of the region.

"There were lots of arbs in June," said a Northwest European-focused trader.

Cheaper dirty tanker freight rates have encouraged this arbitrage to open, but participants see the window as more closed toward the end of June.

Lower sulfur blending components have been in short supply as these volumes are sold into the feedstocks pool amid elevated refinery appetite.

"There are some more components available, but it's still expensive to blend VLSFO," said a second trader.

Mid-sulfur product remains readily available, with minimal demand outlets in Northwest Europe other than the HSFO blending pool.

Local bunkering demand for VLSFO has been subdued, but lower flat prices are incentivizing increased end-user demand across Northwest Europe and the Mediterranean.