HSFO ARA barges crack to soften after Singapore margins fall further

London (Quantum Commodity Intelligence) - High sulfur fuel oil (HSFO) barge spot cracks in ARA are expected to fall sharply again Tuesday, extending a recent trend, according to paper brokers, after Singapore cracks for all bunker fuel collapsed.

Crack levels for June paper for HSFO barges were trading at -$12.1/b at the time of the Singapore close, or 0930 UK time, down from -11.66/b at 1630 UK time Monday.

Quantum assessed HSFO barge prices in ARA at $362.75/mt on Monday, or a crack value of -$12.11/b versus front month Brent, down a sharp 79 cts from Friday.

The softening of HSFO cracks likely reflects the decision by OPEC+ to release more supplies in May and June - a dynamic that adds more sour crudes into the global market.

However, the Indian Covid-19 pandemic has also added bearish pressure to the bunker supply market, while Middle East utility demand has not emerged.

Singapore cracks for HSFO were marked at -$11.61/b versus July cash Brent, the lowest in months.

The weakness is impacting the whole bunker complex with marine fuel 0.5% cracks FOB Singapore poised to go negative using a 6.9 conversion rate and the front month time spread for June/July widening to -$3.30/mt compared to flat at the start of the month.

Crack values for HSFO barges have been on a downward trend since April 15, with crude rising more than 5% over that period.

Higher crude prices tend to extend oil product cracks trend, with negative cracks deepening and positve cracks stengthening.    

But it's not just stronger crude that is depressing cracks, the ratio versus Brent has fallen from 89% to 85% over the past two weeks after news broke that Singapore's fuel oil stocks jumped to a four year high in early May.

Fuel oil stocks in ARA fell 11% over the week to May 14, according to data from Insights Global, but it has failed to arrest the recent trend of falling crack levels.