Asian low sulfur fuel market refining margins drop under further pressure
Quantum Commodity Intelligence - Refining margins for low sulfur fuel oil continued to come under pressure in Asia at the start of the week, with easing margins in the distillates market freeing up supply of blend stocks and adding to building supply in the residual fuel market.
The spot crack for 0.5% sulfur marine fuel was down another $0.62/b on Monday to a nine-week low of +$11.37/b.
Moves further along the curve have also left theoretical refining margins under pressure, with the forward crack falling into negative territory last week and only just recovering to a razor thing premium on Monday.
The spot move comes as backwardation eases at the front end of the market, arbitrage opportunities for greater supply to move to Asia are opening and adding to an already growing book of business slated for the second half of next month.
Refiners in the region have started to prioritise fuel oil output as distillate margins have retreated from recent record highs, with the crack and regional supply picture in the residual fuels market still looking relatively attractive even as prices have eased.
That has fed into a falling August East-West EFS – a measure of the relative value of cargoes in Asia and Europe – which was down to just $33/mt on Monday, having fallen from a peak of $82/mt last week and from almost $94/b at the start of the month.
Peaking at a massive $26.42/b at the start of the month, the M1/M2 spread had fallen to just $4.80/b on Monday. The M2/M3 spread is down from $17.67/b to just $2.96/b.
That unwinding of tight spot supply in the low sulfur market has come as high sulfur fuel oil prices remain largely steady, buoyed by firm cargo demand and mounting utility demand amid high summer temperatures.
The Hi5 spread – the price difference between cargoes of 380 CST HSFO and 0.5% sulfur – has been under pressure since hitting an all-time high of $514/mt at the start of the month, falling as supply constraints have eased in Asia.
That gap fell another $25.50/mt in Singapore on Monday to hit a two-month low of $306.50/mt.
