Asia residual fuels: Key market indicators for July 12-16

Morning discussions for the September ICE Brent futures contract were trading at $75.46/b at 0215 GMT July 12, up from the $74.53/b level at 0830 GMT July 9, Intercontinental Exchange data showed.

In the Asian fuel oil markets, both low sulfur and high sulfur fuel oil are expected to benefit from more bullish fundamentals, according to Singapore traders, as LSFO supply begins to tighten, and HSFO power demand picks up in South Asia.

Marine Fuel 0.5%S

** Discussions for the Singapore Marine Fuel 0.5%S August/September spread July 12 were rangebound with bids for the spread at $1.75/mt against offers at $2.50/mt, according to Intercontinental Exchange data.

** In North Asia, China's top low sulfur fuel oil producer, Sinopec, is likely to run out of their 2.05 million mt of export quotas in August, which would lead to tight supplies at the country's bunkering ports.

** Even though the availability of barges has tightened due to a pick up in demand for Zhoushan-delivered marine fuel 0.5%S, bunkering calls began to decline ahead of deteriorating weather conditions in the next one week at least, industry sources said.

** Platts data showed that the cash differential between the Zhoushan-delivered marine fuel 0.5%S and FOB Singapore marine fuel cargo climbed to almost a six-week high of $12.17/mt on July 8 before edging down to $8.40/mt on July 9, which is up $4.94/mt week on week.

** Although the deviation of bunkering calls from the southern ports in China continues to support demand in Hong Kong, bunker suppliers at South Lamma faced competitive bids that are almost equivalent to the prices of delivered marine fuel 0.5%S at Zhoushan.

** According to Platts data, the spread between delivered marine fuel 0.5%S at Hong Kong and Zhoushan narrowed to $8/mt on July 9, from $10/mt the previous day.

** Bunker suppliers said that prices of delivered VLSFO, HSFO, and LSMGO might rebound in the short term, as Hyundai Oilbank and S-Oil are both cutting production capacities of VLSFO, HSFO, and LSMGO due to weaker margins and ample supplies.

** Industry sources are also not expecting SKTI to offer much VLSFO for the rest of July, as they had oversold during H1 July in order to tighten inventories.

High Sulfur Fuel Oil

** According to ICE data and brokers' numbers, morning discussions for the Singapore 380 CST high sulfur fuel oil August East/West spread were seen trading at $12.50/mt July 12, down from the July 9 assessment at $12.75/mt.

** High sulfur fuel oil cargo demand, meanwhile, remains buoyed by firm demand from Pakistan's power sector, according to Middle Eastern traders, and is expected to see some support due to demand from a power sector in Pakistan and Kuwait.

** Meanwhile, Saudi Arabia's high sulfur fuel oil purchases from Asia have fallen sharply this summer from a year earlier due to the startup of the Jizan refineryand crude oil burning at power plants, market sources said.

** Further north, in Japan, market sources said that HSFO bunker sales across July could be at par with volumes sold in June. With no increase in supplies on the horizon, the lukewarm demand would also balance the inventories of both VLSFO and HSFO grades.