SINGAPORE: Asia’s high-low (HiLo) sulphur price spread climbed on Tuesday, hovering near a two-year high amid bullish low-sulphur market residual fuel fundamentals and a weak high-sulphur fuel oil (HSFO) market.
“Markets wasted little time pricing in refiners’ shift to simpler operations in response to soaring natural gas prices,” Energy Aspects said in a note on Tuesday.
The front-month HiLo sulphur price spread, the difference between front-month 0.5% very low-sulphur fuel oil (VLSFO) and 380-cst HSFO swaps, climbed to $139.75 a tonne on Tuesday, up by $3.25 from the previous session, Refinitiv data showed.
The HiLo spread was at $144.50 a tonne last Wednesday, the highest since February 2020, the Refinitiv data showed.
“The blowout in the VLSFO-HSFO spread highlights the tightness in clean products markets east of Suez, but it could take months for crude flows to switch and for refiners to capture this spread,” said Energy Aspects, adding that the spread should remain near current levels.
The front-month VLSFO crack also firmed on Tuesday, climbing to $13.26 a barrel above Dubai crude, despite firming crude oil prices.
VLSFO output is tightening amid a push by refiners to maximize producing higher value fuels like gasoline and gasoil.
“Robust gasoline markets mean that North Asian producers that have traditionally swung output between VLSFO and gasoline are likely to focus on gasoline production for the time being,” said Energy Aspects.
Oil rose towards $85 a barrel on Tuesday, not far from a multi-year high, supported by signs that supply from OPEC and other producers is falling short as demand recovers from the worst of the pandemic.
The increase in OPEC’s oil output in October undershot the rise planned under a deal with allies, a Reuters survey found on Monday, due to involuntary outages and limited capacity in some smaller producers.
No VLSFO and HSFO cargo trades were reported in the Singapore trading window.
China’s Ministry of Commerce said on Tuesday it has set the non-state crude oil import quotas for 2022 at 243 million tonnes, the same level as it planned for 2021.
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