HSFO refining margins in Rotterdam under pressure, stocks increase

London (Quantum Commodity Intelligence) - Refining margins for high sulfur fuel oil (HSFO) in Rotterdam tumbled to $10 below Brent futures on Thursday as OPEC's decision in early April to increase supplies trumped a sharp drop in stocks following the re-opening of the Suez Canal, Quantum data shows.

The crack level against Brent was as high as -$6.25/bbl on March 19 before the Suez Canal was blocked when a container ship became wedged in one of the narrowest stretches of the waterway, which was historically high amid a shortage of sour crudes on the global market.

The refining margin was still hovering around -$7.60/bbl on March 30.

But the HSFO crack level tumbled in April despite a sharp drop in marine fuel stocks, which dropped 16% over the week to April 8 to 9.56 million barrels, according to sources quoting IHS Global Insights.

Stocks held in independent storage tanks in ARA had swelled to 11.37 million barrels over the previous week to April 1, the highest since at least 2005.

After OPEC's decision to increase supplies, as well as signs of relations thawing between Iran and the US, which will increase sour crude availability, HSFO crack levels fell to around -$9.25/bbl on Tuesday and Wednesday this week, before slipping lower again on Thursday.

The spread between HSFO and marine fuel 0.5% sulfur, which has a high degree of distillate blends, has also ballooned wider.

The difference between HSFO and marine fuel 0.5% FOB barge prices in Rotterdam was $117/mt on Thursday, up from $98/mt on April 1.

OPEC and its allies decided to ease production cuts in May, June and July.

Compared to the 6.9 million b/d cut in April, the cartel will be pumping an additional 350,000 b/d in May and June, and another 441,000 b/d in July.

Saudi Arabia will also ease its own voluntary production cut of 1 million b/d, lifting to 750,000 b/d in May and June.