Singapore's LSFO arbitrage inflows from West to see an uptick in H2 Sep

Singapore's low sulfur fuel oil arbitrage inflows from Western markets in September are likely to remain in line with the preceding month, thanks to an uptick of arrivals in the second half of the month, traders said, with finished-grade supplies of the marine fuel continuing to stay relatively limited in the near term.

The world's largest bunkering hub of Singapore is expected to receive around 1.6 million-1.8 million mt of low sulfur fuel oil from the West in September, according to multiple Singapore-based traders, which leaves the volume unchanged from the estimates for August.

"There are some medium-sulfur barrels coming from Europe, and the usual shipments from Brazil. But the Middle East situation hasn't changed at all," said one Singapore-based trader. "There is still a lack of sulfur cutters in the region ... And that would continue to cap LSFO supplies."

Another LSFO trader said the September arbitrage volumes from the West could be "slightly higher" — maximum one or two cargoes extra month over month — "But they're all coming in H2 Sept."

The persistent lack of supplies from Kuwait amid the ongoing war in the Middle East has been one of the pivotal factors behind the recent supply tightness, traders said. Some noted that low-sulfur straight-run fuel oil from West Africa could provide some relief to the market, which has been struggling with the persistent scarcity of sulfur cutters.

At least three market sources told Platts there was a possibility of one Aframax-sized cargo of LSFO from Kuwait arriving in Singapore in September.

Some on-specification regional supplies, especially from Malaysia, have added to regional stockpiles in recent weeks, but overall availability of Asian LSFO blendstock remains tight, according to market sources.

"Unless the Middle East situation changes drastically, October should also be tight in terms of arbitrage arrivals," said one trader, while another trader said "H2 September should see more cargo arrivals ... In terms of sulfur cutters, the situation will be better than before. And, there will be some finished grades in the second half of this month."

The West-East LSFO arbitrage window has been largely shut over the last couple of weeks, but some counterparties could make it work for some grades, trading sources said.

Platts, part of S&P Global Energy, assessed the spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, at $95/mt on Sept. 4, widening from $89.75/mt Sept. 3.

The spread, which hit a record high of $165/mt in March, has since cooled off and is about 9.5% weaker than end-of-July levels, according to Platts data dating back to April 2022.

The Singapore marine fuel 0.5%S cargo's cash differential over the Mean of Platts Singapore marine fuel 0.5%S assessment, which posted a weekly gain of about 17% in the week ended Sept. 4, was assessed at a premium of $34.80/mt at the Asian close Sept. 7, down from $40.41/mt in the preceding session, Platts data showed.

High freight

Higher dirty tanker freight costs continued to put pressure on the arbitrage window for finished grade 0.5%S product from Europe to Singapore.

"The arb is not easy unless you have an economic vessel," said a European trader.

Some volumes were, however, still moving amid robust premiums for product in the Singapore market.

"A few boats moved in August, and there will be more in September," said another trader.

European 0.5%S fuel oil has been structurally tighter amid a dearth of lower sulfur blending component availabilities and a sourer crude slate in the Mediterranean. However, market participants said that into September, availability of product was increasing across Northwest Europe, which could make the arbitrage to Asia more appealing.

Asian markets, meanwhile, remain a viable outlet for European mid-sulfur components, with an additional source noting "some 0.6-0.7%S product has left Europe."