Asia Fuel Oil: Refining margins to log yearly fall on higher Russia supplies

SINGAPORE: Asia’s fuel oil refining margins were set for annual declines, data showed on Friday, amid higher supplies from Russia after Western sanctions, while softer demand at the world’s largest bunkering hub Singapore also capped market recovery.

Front-month cracks for 0.5% very low sulphur fuel oil (VLSFO) hit record highs in end-June amid a rally in gasoil margins, but the uptrend fizzled out in the second half of 2022, with VLSFO cracks slumping to over two-year lows in mid-December.

The VLSFO refining crack was on track for a decline of over 25% compared to the start of the year, Refinitiv data showed Friday.

Meanwhile, front-month cracks for high sulphur fuel oil (HSFO) struck record lows in October this year as more high-sulphur Russian barrels were re-directed to Asia.

Going into 2023, more fuel oil supplies are expected to flood Asia as Kuwait’s new Al-Zour refinery ramps up output, and as Russia diverts record volumes from Europe to the East ahead of sanctions.

Singapore’s 0.5% VLSFO spot differential fell to a premium of $10.52 a tonne to Singapore quotes on Friday.

Despite a turbulent mid-year rally to record-high premiums, the VLSFO spot market ended the year on a relatively stable note versus early-2022, when it was at a premium of $13.84 a tonne.

Singapore’s 380-cst HSFO cash differential was little changed at a premium of $2.75 a tonne to Singapore quotes on Friday, ending the year slightly stronger compared to January when it was at a thin discount.

The spot 380-cst HSFO differential hit a multi-year high in April after a slew of bunker fuel contamination cases constrained supplies, though the rally quickly gave up gains amid an uptick in high-sulphur supplies from Russia.

Singapore’s landed fuel oil stocks averaged at 20.90 million barrels (3.29 million tonnes) a week in 2022 so far, compared with 22.48 million barrels (3.54 million tonnes) in 2021, Enterprise Singapore data showed.