Australia's crude oil exports rebound in June as Asia seeks heavy sweet oil

Singapore — Australia's crude oil exports staged a rebound in June, with a sharp increase in shipments to Singapore leading the recovery, amid Asia's robust demand for low sulfur fuel oil blendstock in preparation for stricter marine fuel sulfur requirements in 2020, market participants said Thursday.

Australia exported 8.15 million barrels of crude oil and other refinery feedstocks in June, up 12.3% year on year and 26.7% higher than May, latest data released by Australia's Department of the Environment and Energy showed.

Singapore was Australia's largest export destination for June with volumes surging to 2.77 million barrels, an increase of 55.5% from same period a year earlier and up 66.3% from the previous month, marking the highest monthly shipment to Asia's oil trading hub so far this year, the data released last week showed.

Strong demand for Australian low sulfur heavy crude grades from marine fuel suppliers for fuel oil blending likely played a major role in driving the sharp increase in refinery feedstock exports to Singapore during the month, Asian market and industry sources said.

Australian heavy sweet grades including Vincent, Van Gogh and Pyrenees are widely seen as an ideal feedstock for low sulfur marine fuels.

Lofty spot premiums paid for the heavy sweet grades so far this year reflect the surge in stockpiling demand for LSFO components in preparation for January 2020, when the International Maritime Organization's new sulfur cap for bunker fuel kicks-in, the sources added.

Asian heavy distillate traders, in early March, said the stocks of low sulfur fuel oil and the components were around 1 million mt, with three to four VLCCs reportedly used to store these components in the waters of Singapore and Malaysia.

By May, this volume had jumped to over 3 million mt with about ten VLCCs as floating storage for these low sulfur components, Platts reported previously.

Most recently, around 12-15 VLCCs were already taken up in and around Singapore for storing LSFO, according to a Singapore-based trade source with direct knowledge of the matter.

Another source said that Singapore seemed the 'right place' to make the switch to MGO and LSFO, given its strategic location, infrastructure, thrust towards compliance and enforcement of rules as well as bunker hub dominance.

Singapore is the world's largest bunkering port. Developments in the city-port's bunker market provide cues for other marine fuel hubs globally.

OTHER OUTLETS, PRODUCTION

Elsewhere, exports to Malaysia edged 2.5% higher from May to 1.68 million barrels in June, while shipments to China also rose slightly, up 1.6% month on month to 659,144 barrels, the data showed.

The United Arab Emirates was sent 329,199 barrels, up from zero in June last year and May 2019.

Shipments to South Korea dropped to a three-month low of 143,269 barrels in June, down 77.9% from a year earlier and 85.5% lower from May, the data said.

Meanwhile, crude oil production in Australia rose 0.8% month on month and up 12.8% from a year earlier to a 14-month high of 3.77 million barrels in June.

Condensate output was at a two-month high of 7.09 million barrels in June, up 48% year on year and 9.7% higher than May, the data showed.

The country's LPG production surged to a nine-month high of 1.8 million barrels, up 19.7% year on year and 12.2% higher month on month.

-- Gawoon Philip Vahn, philip.vahn@spglobal.com

-- Surabhi Sahu, surabhi.sahu@spglobal.com

-- Nathan Richardson, newsdesk@spglobal.com

-- Andrew Toh, andrew.toh@spglobal.com

-- Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com