Singapore's July term ex-wharf HSFO differentials widen, ample stocks pose headwinds

Term ex-wharf 380 CST high sulfur fuel oil barrels for July supply around the world's largest bunker hub of Singapore were inked around a minus $3-$2/mt premium against benchmark FOB Singapore 380 CST HSFO cargo values, traders said July 11, while the hub is likely to remain well supplied in the near term.

July's term ex-wharf HSFO cargoes were around rangebound to slightly stronger levels compared to June-loading contracts, where most barrels were concluded at approximately low to mid-single digit discounts, according to traders, which slumped from the $2-$4/mt premiums signed for May-loading cargoes.

In fact, as the overall HSFO dynamics remained lackluster amid a supply overhang and the bunker market struggled to absorb these cargoes, substantial volumes of ex-wharf barrels for July's supply were fixed at around minus $3/mt to flat.

Upstream valuations also slumped. Platts, part of S&P Global Energy, assessed the Singapore 380 CST HSFO cargo cash differential to the Mean of Platts Singapore 380 CST HSFO strip assessments at an average of minus $5.56/mt so far in July from premiums of $6.88/mt across April.

The HSFO cash differential weakened to a multiyear low of minus $6.68/mt on July 3 and was last assessed lower at minus $7.12/mt on Sept. 14, 2022.

Downstream spot demand has been uneven so far in July, with little improvement from June's volumes, though some suppliers could fill their available prompt barging slots with stable volumes of term contract nominations, which lent some measure of price support.

"Term nomination volumes are healthy, spot demand was bad in June but tough to assess as it is still early in July. Prompt [barge] availability varies across suppliers," a Singapore-based trader said.

Platts assessed the spot Singapore-delivered 380 CST HSFO bunker premiums over the FOB Singapore 380 CST HSFO cargo value at an average of $7.12/mt over July 1-10, up from $2.15/mt in June.

The spot delivered differentials slumped to an all-time low of minus $2.65/mt on June 11 but rebounded to $6.30/mt on July 10.

"Most sellers are okay to accept prompt [refueling dates], though some [suppliers'] earliest availabilities are further out," according to a source from a shipping company.

Suppliers' downstream margins remained slim but improved with the HSFO delivered versus the ex-wharf spreads, or barging spreads, rising to an average of $6.13/mt over July 1-10 from $1.71/mt in June.

However, much to the relief of shipowners with scrubber-fitted ships, downstream spreads between the low sulfur fuel oil and its high sulfur counterpart, or Hi-5 spreads, widened to a near eight-month high of $110/mt on July 3, before slightly narrowing to $99/mt on July 10.

Prompt supply healthy

Plentiful stockpiles of HSFO around Singapore are expected to weigh on fundamentals for the near term amid ample replenishment cargoes in July through early August, pressuring the front-month paper structure into a contango.

In the first two weeks of July, elevated arbitrage HSFO inflows reportedly sourced from the Middle East and Russian barrels have found homes around the Singapore hub. According to industry sources, buoyed flows of similar origins and from South America are expected for the rest of the month.

Platts assessed the Singapore 380 CST HSFO M1/M2 swaps calendar spreads at an average of $3.34/mt over July 1-10, down from $8.05/mt in June.

However, the 380 CST balance-month/M1 swaps spreads first flipped into a contango since July 1, and the structure has since widened to minus $2.55/mt on July 10.

The softening HSFO complex also reportedly piqued stronger import interests from China's independent refineries in recent weeks, but stronger demand would be needed for any significant price support, traders said.

"China's domestic refining margins have not significantly improved. Only that the favorable adjustments of import taxes and consumption tax rebates by Shandong's tax authorities, which raised their HSFO import demand," a fuel oil trader said, referring to a recent uptick in straight-run feedstock import appetite by independent refineries.

The Platts-assessed front-month Singapore 380 CST HSFO crack against prompt-month Dubai crude tumbled to an over three-month low of minus $2.44/mt on July 9, before marginally increasing to minus $2.34/mt on July 10. It was last assessed lower at minus $3.34/mt on April 4.

HSFO cracks have gradually weakened to an average of minus $1.95/mt so far in July, flipping from a slight premium of 9 cents/mt in June, and $3.19/mt in May.