Fuel summary: Crude rally lifts flat prices, keeps cracks subdued
Quantum Commodity Intelligence – Fuel oil prices were lifted by a rally in crude through the week although that did no favours to refining margins, while the Hi5 spread continued to unwind recent strength ahead of expected output HSFO output cuts.
Asian VLSFO prices peaked at their highest levels since January this week, with Quantum data showing a print of $665.50/mt on Thursday evening before pulling back slightly into the weekend.
Almost all the move in the VLSFO market can be attributed to the rally in crude prices this week, with persistent bullishness emerging as some producers started to talk up the idea of $150/b crude as Brent hit 11-month highs.
The strength of crude was not enough to eat into cracks significantly through the week, however, with VLSFO margins continuing to bounce along barely above theoretical breakeven levels – with broker data showing the October crack to Brent holding below $1/b on Friday.
European prices continued to struggle amid high supply and steady demand, with the crack versus crude slipping to a five-month low as October was priced at almost $7/b below Brent.
Flat prices enjoyed similar support to Asia from the rally in crude, with the outright peaking at $612/mt FOB ARA on Wednesday before pulling back a touch into the weekend.
HSFO
A similar crude-driven rally was seen in the HSFO market through the week in Asia, with the week's moves helping to lift prices $24/mt at one stage before pulling back to a more modest $5/mt gain on the week as Singapore closed around $518.50/mt.
Prompt tightness in the Asian HSFO market threatened to defy the rally in crude prices seen through much of the week, with cracks creeping higher from last week's lows and posting almost $5/b in gains versus last week's bottom at one stage.
However, the second half of the week saw that rally in paper cracks run out of steam and left the Asian October spread to crude at $12.10/b under Brent futures – cutting the week's gains to a $0.30/b loss by Friday.
Despite that weakness in cracks in the second half of the week, paper continued to show strength at the front end of the market as backwardation steepened and the market braced for lower supply from Russia ahead of turnaround season in October and November.
Broker data showed the 380 CST M1/M2 spread ballooning to $14/mt midweek before ending September at $11.75/mt, while the M2/M3 peaked at $8.50/mt on Thursday.
The Hi5 also received some support in HSFO's favour, with the spread dropping to a two-week low of $128/mt on Thursday before rebounding during Friday's trade amid strong VLSFO market interest at the month-end.
Despite Friday's reverse, the Hi5 is expected to narrow again as part of the aforementioned Russian refinery maintenance, with FGE telling clients, "The spread drop further to US$100/t in November when HSFO cracks receive support from lower Russian exports".
In the European market, plenty of supply and steady demand kept HSFO in a similar pattern to VLSFO – with the crack versus Brent slumping to a two-month low of $9.90/b under Brent futures.
Stocks
There were notable falls in product inventories through the week, with Singapore slumping 10% as the equivalent of 2.1 million barrels left storage to leave inventories at 19.8 million barrels.
Trade data showed another 6.5 million barrels landing through the week, although that was below some of the elevated levels seen of late.
Insights Global called ARA stocks down 3% on the month at a nine-month low of 6.7 million barrels,
Fujairah was steady over the week at 10.2 million barrels, while EIA data showed US stocks slipping 100,000 barrels to 28.7 million barrels.