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Selling interest in Marine Fuel 0.5%S mounts as gasoil contango narrows

Highlights

Traders try to quickly reduce MF 0.5% stocks

Singapore 10 ppm gasoil contango narrows to 7-week high

Singapore-delivered Marine Fuel 0.5% bunker premium slumps 68%

Singapore — Selling interest in the Singapore Marine Fuel 0.5%S market aggravated, especially in the delivered bunker fuel oil segment, on narrowing 10 ppm sulfur gasoil contango, market sources said Monday.

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Singapore 10 ppm sulfur gasoil is still the main benchmark of Marine Fuel 0.5%S, industry sources said. As contango in the gasoil market was so steep, fuel oil traders were storing low sulfur fuel oil in landed terminals and floaters in Singapore to take advantage of contango structure in 10 ppm sulfur gasoil market. The 10 ppm sulfur gasoil structure, however, started to narrow on tighter supply.

"Asian fuel oil traders have been bringing cargoes to Singapore, because gasoil backwardation was so steep," said a fuel oil trader based in Singapore.

As traders stockpiled low sulfur fuel oil, stocks were built around Singapore. Singapore's commercial onshore residue stocks jumped 13.9% on the week to 24.987 million barrels, or 3.93 million mt, as of May 13, data from Enterprise Singapore showed. The stocks were the highest since March 25, showed the data.

In addition to landed terminals, there are about 5 million mt of stocks in floaters around Singapore, traders said.

"We cannot carry over fuel oil stocks with the current gasoil contango. There is no point," said the trader.

The Asian gasoil complex has been strengthening over the last few weeks, buoyed by tightening supply balances in the region.

Traders said that the strength has been underpinned by a combination of refinery run cuts and the seasonal spring turnaround season, which has worked to pullback refinery production outflows of the middle distillate product.

At the Asian close Friday, the June/July Singapore gasoil futures spread was assessed at a near seven-week high of minus 79 cents/b, having risen from a record low of minus $2.58/b on April 22, S&P Global Platts data showed. This was the lowest the front-month timespread has been since the sulfur content in Platts' benchmark gasoil was changed to 10 ppm from 500 ppm on January 1, 2018.

The prompt market

While traders are rushing to sell low sulfur fuel oil, delivered bunker fuel market is the main battlefield of sales as it is more prompt.

Traders typically trade delivered bunker fuel for delivery in one week or so, while they trade fuel oil cargoes for loading which happens in one month or so.

As a result, Marine Fuel 0.5%S delivered bunker premium over cargo has been shrinking because of weaker delivered bunker premium.

Singapore-delivered Marine Fuel 0.5% bunker premium to the benchmark FOB Marine Fuel 0.5% cargo has decreased 68.4% from a 10-week high of $36.08/mt April 29 to $11.39/mt Friday amid ample supply and tepid demand, sources said.

Weakening demand in May is also helping the premium go down.

According to market participants, the demand started to taper off by the first week of May as buyers found replacement deliveries after Hin Leong's bunkering arm Ocean Bunkering Services left the market.

Singapore's bunker fuel sales in April declined 4.83% on the month to 4.11 million mt, data from the city-state's Maritime and Port Authority showed last week.

Even in the absence of supply from OBS, market participants estimate that the combined fuel oil stocks of onshore terminals and floaters are enough to meet fuel oil and bunker demand for two months. In addition, the MPA announced on April 20 that it has awarded two new bunker supplier licenses to Minerva and TFG Marine. Both suppliers are expected to commence supplying bunker fuel this month, encouraging more competitions.

Amid current supply overhang, some traders were prompted to lower their offers to spur buying interest. "These couple of weeks, we have been receiving inquiries but they are not substantial. It's mostly below 1,000 mt," a second bunker trader said.

Market participants added that the near-term global macroeconomic outlook remains bearish even as countries ease their lockdowns. "Buyers are very cautious now. They don't want to stock too much bunker fuel because we don't know how long it will take for things to return to business as usual," the trader added.