Fuel summary: Marine fuel cracks collapse as supplies increase
Quantum Commodity Intelligence - Refining margins in the marine fuel market continued to tank this week as the supply of fuel oil continued to increase across the global market, with easing supply tightness in the distillates market feeding into residuals.
Marine fuel prices continued their downwards trajectory amid a wider selloff in crude and distillates, with Asian 0.5% sulfur cargoes down 11% on the week to $778.25/mt.
Refining margins continued to fall, coming under pressure as the supply of cutter stocks in Asia picked up as refiners redirected volumes away from decreasing distillate margins and into the residual pool.
Adding to that, Kuwait's new Al Zour refinery is expected to get underway this month, with the 615,000 bpd site focussing on producing marine fuel and will be able to churn out as much as the entire Mediterranean region once at full capacity early next year.
The spot 0.5%S crack to Brent lost more than half its value over the week, down $17.57/b to a two-month low of +$11.99/b.
Persistently steep backwardation is also becoming less of an issue as supply tightness eases, with the 0.5%S M1/M2 spread in Singapore down to $43.50/mt on Friday, which is its lowest since early June. A similar trend was seen further along the curve.
European prices, with the added complexity of many buyers trying to shun Russian-origin cargoes before a full-scale ban comes into place in February, have held up better – with barges of low sulfur marine fuel static in ARA at $726.25/mt.
Those Russian flows not going to Europe and the US continue to make their way to the Middle East and Asia.
"Within the Middle East, the storage and trading hub of Fujairah in the United Arab Emirates in particular saw imports of Russian RFO spike to over 150kbd so far in July, well above the previous record of 80kbd in May," analysts Vortexa said this week.
"In Asia, the Singapore bunkering and trading hub also saw its imports of Russian fuel oil surge to a 16-month high of 130kbd so far this month, with volumes expected to remain elevated," the report said.
That can be seen in storage levels, with Fujairah stocks up another 410,000 barrels this week to 12.6 million barrels, with levels now running at almost double the pre-war level.
In Singapore, vessel owners have started to take advantage of the outright price slump, with stocks down 1.02 million barrels to a three-month low of 19.8 million barrels.
EIA data had US steady, dropping 100,000 barrels to 29.2 million barrels. And in Europe, ARA stocks rose 380,000 barrels to 7.4 million barrels.
In the high sulfur fuel oil market, prices fared better than low sulfur fuel oil for a second week, with prices hitting six-month lows last week apparently tempting buyers back into the market and supporting bunker demand.
And that has weighed on the Hi5 spread in Asia, which has tumbled by more than a quarter over the week, falling almost $120/mt to a two-month low of $330/mt.
Cargoes of 380 CST were up 6% from last Friday's lows to end the week at $448.25/mt in Singapore, while ARA barges were up 7% to $458.75/mt.
