Fuel summary: East-west spikes as Asia cargo flows slow

Quantum Commodity Intelligence - East-west spreads spiked in the high and low sulfur fuel oil markets the week ending 25 Nov., with a slowdown in net arrivals into Singapore disrupting the recent balance in the residual fuels market.

After several slow weeks in Asia suggesting the market was winding down into the year-end, nearby prices have spiked as cash prices jumped and calendar spreads ballooned.

That has driven the low sulfur fuel oil east-west spread – a measure of the relative strength of the Singapore and ARA markets – to jump a third over the week to a four-month high of $92/mt.

That move came against a backdrop of yet another volatile week for the crude market and as a slowdown in imports into Singapore has hampered spot availability in the world's biggest bunkering hub, with stocks down 9% week-on-week to 19.3 million barrels.

While only a three-week low, that drop in arrivals was of enough concern to the local market that sellers stepped back as differentials were bid up to almost $22/mt by Friday – up from just $4/mt at the start of the month.

With no sellers on nearby cash positions through the week, paper prices have also rallied, with the Nov/Dec spread in Singapore jumping to $21/mt from just $5/mt a week ago.

Driven by the temporary tightness, moves along the curve were less pronounced but still noteworthy – with Dec/Jan at $14/mt from $9/mt last week and Jan/Feb at $11/mt from $5/mt. Beyond Q1, however, there was little change of note.

Despite those moves, on the outright, the Asian 0.5% marine fuel cargo prices ended the week up only $20/mt at $624/mt FOB Straits.

However, Singapore marine fuel refining margins have jumped against a falling crude market, up from a $1.50/mt discount to Brent a week ago to a $4.50/mt premium by Friday's close.

As previously mentioned, European markets were nowhere near as dynamic as Asia this week, with the 0.5% barge trade crawling along at a snail's pace as prices gained $21/mt to $543/mt FOB ARA.

On the fundamentals side, European supply was up as Insights Global data showed ARA fuel stocks rising 7% this week to just shy of 7 million barrels.

Brokers spoke of some signs of tight spot availability at key Mediterranean bunkering stations such as Gibraltar and Malta, but the general supply situation remains straightforward with limited sourcing issues.

In the Middle East, where supply remains high as Russian barrels continue to find a home in storage, data from FEDCom this week showed little overall change in stocks as they held steady near 18-month highs of 14.4 million barrels.

Meanwhile, results of the first tender from Kuwait's Al-Zour refinery showed BP booking 100,000 mt of marine fuel for delivery by the end of the month at a $17/mt FOB premium to Singapore paper.

In the US, the EIA's weekly Petroleum Status Report showed a 10% rise across the country as stocks were back up to 29.7 million barrels.

Vessels

On the demand side, vessel owners continue to see a mixed picture for shipping rates that varies by category and class.

Tanker rates are firm but have shown signs of wobbling, with some of the sting taken out of a buoyant VLCC market this week after China said it would dial back on Saudi imports due to a lack of domestic demand.

Aframax rates are skyrocketing as the market pivots to find routes for shipping Russian products away from Europe, although question marks remain over how the market will develop practically after the EU's oil sanctions hit Russia on 5 December.

Dry bulk rates bounced off recent lows as the Baltic posted a one-week high on Thursday as news emerged that the Black Sea grain corridor was to be extended for another three months.

However, analyst consensus remains downbeat over the sector's prospects into the new year as an oversupply of tonnage and an overall lack of demand due to global economic headwinds and China's Covid policy.

HSFO

Trends in the high sulfur market were like those in the low sulfur, albeit not as pronounced. Cash differentials in Singapore were up – 380 CST rallying to over $10/mt from less than $4/mt last week.

That was not enough to stop Asian cargoes from finishing the week $12/mt lower at $381/mt FOB Straits, although theoretical refining margins continued to be eroded as crude prices fell.

On the east-west, the mid-week move in Singapore drove the spread to spike from just $3.50/mt last Friday to $41/mt on Wednesday. That level has since come off, however, and was back down to $24/mt at the Asia close.

In Europe, ARA 3.5% fuel oil barges were down $19/mt over the week to close Friday at $352/mt.