Singapore — An emergence of strong demand, especially during the Platts Market on Close assessment process, helped strengthen the Asian low sulfur marine fuel market.
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Register NowThe market likely bottomed out when the cash differential between the Singapore Marine Fuel 0.5%S cargo and the Mean of Platts Singapore Marine Fuel 0.5%S widened to a near seven-month low at minus $15.49/mt on April 24.
Still, a persistent supply overhang led the market to trade in a narrow range, while the cash differential progressively narrowed to be assessed at minus 88 cents/mt at the Asian close July 3.
The market structure at the front of the Singapore 0.5%S marine fuel swaps curve had also shown a similar trend, as the contango has steadily narrowed to be assessed at minus $3.50/mt at the Asian close July 3 from a near six-month low at minus $11/mt reached on April 30 .
Even so, a likelihood that the Asian low sulfur marine fuel market would surge, and in any hurry, into a positive territory, both on the cash differential and the market structure fronts, was slim, as the market was still sitting on ample stockpiles to digest any near-term incremental demand, said traders.
Cash differential for physical fuel oil represent the price buyers are willing to pay for the product above or below benchmark values published around the day a cargo loads. A strengthening cash differential indicates growing appetite from buyers, and is typically accompanied by a strengthening in the structure of the forward curve.
The Asian high sulfur fuel oil market, on the other hand, was likely continue to garner support, said traders.
Demand for cracked HSFO is expected to remain firm in the near term, especially from the utility sector both from within the region and from the Middle East, for use as burning fuel to meet peak summer season demand.
Meanwhile, demand for straight-run fuel oil is also expected to be high, especially from Asian refiners looking to trim LSFO output, while increasing production of distillate fuels like gasoline and gasoil on a relatively better margin.
MARINE FUEL 0.5%S SULFUR
**Reflecting sentiment that the market will likely trade in a narrow range around current levels, the market structure at the front of the Singapore 0.5%S marine fuel swaps curve was said to be trading a shade lower in midmorning trades on July 6 compared with its Asian close on July 3. The Singapore Marine Fuel 0.5%S August/September swap was pegged at minus $4/mt in midmorning trades, said broking sources. The spread was assessed at minus $3.50/mt on July 3.
**Even as latest data from Enterprise Singapore showed that the city-state's commercial onshore residue stocks fell 5.5% week on week at 25.12 million barrels for the second straight weekly decline, or at 3.96 million mt, in the week to July 1, the drawdown is attributed largely to HSFO demand from the utility sector, and not necessarily incremental demand for IMO-compliant fuel.
**Singapore's onshore residue stocks averaged 26.15 million barrels in the four weeks ended June 24, up 12.91% over the four weeks ended June 26 in 2019, while it was also 24.05% higher than the 2019 weekly average of 21.08 million barrels, Enterprise Singapore data showed.
**That the LSFO market was well-supplied was discernible in the end-user bunker market. According to market participants, some shipowners have put on hold their discussions for term volumes as spot volumes are readily available. The Singapore-delivered Marine Fuel 0.5%S bunker premium to Singapore Marine Fuel 0.5%S cargo decreased to $14.47/mt on July 1 from a 16-week high at $36.08/mt on April 30, Platts data showed.
**Elsewhere in the north Asian bunker markets, a reduction in 0.5%S marine fuel availability in South Korea is expected to provide a floor for prices despite low demand. South Korean refiners had reduced supply for July, while also resorting to export LSFO. The differential for 0.5%S marine fuel delivered at Ulsan and Busan over FOB Singapore 10 ppm gasoil cargo assessments narrowed $9.36/mt week on week at minus $5.03/mt on July 3.
**In China, MF 0.5%S bunker demand is not expected to see a tangible improvement despite prices falling to competitive levels amid increased domestic production, said traders. Valuations are expected to remain under pressure in Zhoushan as more suppliers return amid a recovery in outright price tracking crude. The Zhoushan-delivered 0.5%S marine fuel bunker differential to FOB Singapore 10 ppm gasoil cargo widened $4.15/mt week on week at minus $33.53/mt on July 3.
HIGH SULFUR FUEL OIL
**Reflecting market sentiment that the Asian HSFO market was expected to trade steady to firmer in the near term, especially due to incremental demand from the utility sector, the market structure at the front of the Singapore 380 CST HSFO swaps curve was said to be trading firmer in midmorning trades. The Singapore 380 CST HSFO August/September swap was said to be pegged at minus 1.75/mt in midmorning trades July 6. The spread was assessed at minus $2.25/mt July 3.
**In the downstream bunker market, market participants expect demand and supply fundamentals to remain largely stable even though the Singapore-delivered 380 CST bunker premium to Singapore 380 CST HSFO cargo assessments was assessed at a 16-week low at $11.59/mt on July 3.
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