Fuel summary: Tight supply shields VLSFO from wider slump
Quantum Commodity Intelligence – Fuel oil prices were caught up in the wider crude selloff that rocked global markets this week, although tight regional supply of VLSFO was able to prevent a bigger drop than could be expected.
VLSFO
The marine fuel market in Asia was shielded from the worst of the week's selloff in crude and products market, with tight supply in the region limiting the drop in flat prices to around 8% while crude was closer to a double-digit fall.
Quantum data showed VLSFO cargoes in Singapore ending the week around $612/mt, the lowest since August. Cracks were able to find some footing after bouncing around at break-even costs for the last few weeks, with the November spread to Brent futures closing at around $1.70/b.
"VLSFO exports from Kuwait's Al-Zour refinery to Asia were lower than expected, with a large portion (80 kb/d) landing in the Middle East (mainly Fujairah and Ras Laffan) instead of Asia in September," analysts FGE told clients Friday.
That near-term supply tightness in Singapore was seen as cargo premiums to paper spiked to $17/mt FOB midweek, reflecting how much some were willing to pay to tempt parcels away.
Similarly in Europe, VLSFO prices in ARA were able to keep their flat price slump to equivalent of a six-week low, with just a 4% drop seen as prices ended Thursday at $565/mt FOB ARA.
While the short-term fundamentals of the VLSFO market appear tight, the start-up of Al Zour's third unit was confirmed this week as coming before the end of the month – a move that should see the number of tenders pick up sooner rather than later.
HSFO
Slumping seasonal demand continued to weigh on HSFO through the week as cracks hit fresh lows, with even the biggest selloff in crude since March not enough to support refining margins.
By the end of the week, HSFO cargoes in Singapore were marked at $436.50/mt – a drop of almost 13% through the week.
The crack versus frontline Brent futures slipped to seven-month low of midweek of more than $16.50/b under. Timespreads also crunched, with the M1/M2 spread that traded at $14/mt just a fortnight ago slipping to $2.50/mt midweek and ending around $4/mt.
Cargo premiums were also coming off, with parcels heard traded midweek at a discount of $4/mt FOB to the curve.
European 380 CST barge prices ended the week down about 10% at $472/mt, with tight supply of sour crude into the region after Saudi Arabia and Russia's extended output cuts remaining a decisive factor in halting a further slide.
The crack versus frontline Brent futures slumped to a discount more than -$14/b on Tuesday before pulling back ground sharply as the crude selloff intensified.
The outright still ended the week at a two-and-a-half-month low, however, with Thursday's close at $472/b FOB ARA the lowest since 21 July.
Although it was not a big ask, European markets held up better than their Asian counterparts – with the east-west still firmly in negative territory at the end of the week at almost -$24/mt.
Despite the bearish setup for HSFO, FGE said they are more optimistic than the forward curve suggests, with current refining economics likely to keep supply coming at a level that provides a floor for HSFO cracks, particularly if gasoil continues to come off.
Furthermore, refinery maintenance in Russia will steady the flow of barrels to Asia and should see a further drawdown in regional stocks, the analysts said.
Stocks
Singapore data showed a 2% drop in inventories through the week to a three-month low of 19.4 million barrels. That came even as trade figures showed over 2.2 million barrels landing in Singapore last week, with the equivalent of around 1.4 million barrels leaving.
There was a large build in Fujairah stocks, with a 14% rise in inventories equivalent to almost 1.5 million barrels recorded that left available supply at 11.7 million barrels.
The EIA called US stocks down 4% on the week at 27.5 million barrels. In Europe, data from Insights Global called ARA inventories 1% lower on the week at roughly 6.6 million barrels.
