Singapore — Despite firm values of high sulfur fuel oil in Asia, medium sulfur fuel oil is still heading to the low sulfur fuel oil pool on account of lower conversion costs, adding to market glut, traders told S&P Global Platts in the week of July 26.
Medium sulfur fuel oil with sulfur content of around 1% can go into either LSFO pool or HSFO pool, depending on the market, traders said. However, the interest is more towards the LSFO pool versus the HSFO, as the cost of converting a lower value product to a higher value is much more.
"It is close to the border, but medium sulfur grade is still going to LSFO pool," said a fuel oil trader based in Singapore.
The 1% sulfur grade fuel oil mainly comes from Europe and Far East Russia, traders said. About 1.5-2 million mt of fuel oil cargoes in total are expected to arrive in Singapore area in August, market sources said.
Meanwhile, three to four MR-sized straight-run fuel oil cargoes with sulfur content of 1%-1.2% are typically exported from Far East Russia every month.
Medium sulfur fuel oil with sulfur content of around 1% has been traded at discounts of around minus $95/mt to $90/mt, traders said.
The Singapore 380 CST HSFO with maximum 3.5% sulfur was assessed at a discount of $121.75/mt to 10 ppm sulfur gasoil on July 28, S&P Global Platts data showed. The discount was $143.64/mt on June 17, according to Platts data, while the discount narrowed due to strong demand for HSFO.
"We will lose $20-$30/mt [by blending medium sulfur fuel oil into HSFO]. We won't do that," said a fuel oil trader based in Singapore.
The spread between 10 ppm gasoil and Marine Fuel 0.5%S was assessed at $48.39/mt on July 28, while the Marine Fuel 0.5%S was assessed at $324.45/mt, Platts data showed.
HSFO market has been strong because Saudi Arabia stepped up buying since June, along with Bangladesh and Pakistan. Saudi Arabia -- which typically buys 380 CST grade -- is expected to buy 1-1.5 million mt/month of HSFO over June-August to meet power demand for summer.
Bangladesh also raised HSFO purchase since June, while Pakistan bought 180 CST HSFO for July delivery for the first time since June last year, Platts reported previously.
LSFO market oversupplied
Ample supply is weighing on the LSFO market as arbitrage cargoes are constantly coming to Asia where the stocks are already high.
In addition, western cargoes typically contain about 1% sulfur, which are expected to go into LSFO pool at this moment. Market sources said the supply would remain ample for at least another couple of months.
The 1.5 million mt of inflow from the West is "more than enough," said a Singapore-based fuel oil trader.
Meanwhile, Singapore onshore residue stocks declined to 23.505 million barrels as of July 22, the lowest since April 29, Enterprise Singapore data showed. But at the same time, there is another 4-5 million mt of fuel oil floating around Singapore, traders said.
Both stocks at onshore terminals and floaters when combined can cover Singapore's bunker demand for a couple of months, traders added.
Meanwhile, downstream delivered bunker market is yet see a significant recovery in demand.
"There is still an oversupply so buyers are only locking in what they really need," said a Singapore-based bunker trader.
"There are some suppliers who are lowering their offers to clear oil but not everyone is following suit," said a second Singapore-based bunker trader.
On July 28, S&P Global Platts assessed Singapore-delivered marine fuel 0.5%S was assessed at $345/mt, up $2/mt on the day. At this level, the grade is trading at a $19.55/mt premium to the benchmark FOB Singapore marine fuel 0.5%S cargo and at a $28.84/mt discount to the benchmark FOB Singapore 10ppm gasoil assessment.