SINGAPORE: Asia’s front-month 380-cst high-sulphur fuel oil crack jumped on Thursday, supported by firming feedstock demand from utilities and refiners as well as weaker crude oil prices.
The front-month crack discount narrowed to $7.50 a tonne below Dubai crude, up from a near two-month low of minus $8.33 a tonne on Wednesday, Refinitiv data on Eikon showed.
Still, HSFO crack values have traded at relatively deeper discounts in the third quarter of 2021, counter to the seasonal rise in demand during the summer months when utilities ramp up consumption.
Since the start of June, the front-month 380-cst HSFO crack averaged at a $6.94 per barrel discount to Dubai crude compared to an average discount of $3.68 a barrel over the same period last year and minus $1.17 a barrel in 2019, Refinitiv data in Eikon showed.
Asian HSFO cracks “found a floor lately and we would argue that the recent weakness is somewhat justified from a fundamentals’ perspective, with only limited respite expected from the end of this year’s high-demand season,” said JBC Energy in a note on Wednesday.
According to JBC, one reason for this is the increased supply of HSFO, particularly from Europe, due to increased refinery runs as a result of recovering refined fuels demand.
US refiners have also ramped up heavy sour crude oil imports from Mexico “to capitalise on attractive full conversion margins”, displacing residual fuel imports and contributing to the broader weakness in HSFO cracks, according to JBC.
“Indeed, even though EIA data has been showing strong implied secondary feedstock processing in the US lately, the pull on externally sourced residue has actually weakened over June,” JBC said.
“The seasonal component also does not look particularly supportive, with Middle Eastern buying this summer season a shadow of its former self,” said JBC, adding that Middle East HSFO demand typically peaks around now and has likely already been priced in.
While the HSFO demand outlook is more encouraging in Asia, “support remains elusive for the months ahead, not only because we are to increasingly see more medium sour OPEC+ barrels hitting the global market as a whole, but also because the bulk of the improving global crude demand over H2 is expected to come from Asia.”
Singapore residual fuel oil inventories rose 1% to a two-week high of 23.09 million barrels, or 3.64 million tonnes in the week ended July 14, moving away from a three-and-a-half-month low hit in the previous week, as Singapore exports dropped to a nine-week low, official data showed on Thursday.
In the United States, residual fuel oil inventories fell to a seven-and-a-half-month low of 30.63 million barrels, or about 4.82 million tonnes, in the week to July 9, data from the Energy Information Administration (EIA) showed on Wednesday.
Vitol bought a 20,000-tonne 180-cst HSFO cargo from Gunvor at a $3.25 per tonne premium to Singapore quotes. No 0.5% very low-sulphur fuel oil (VLSFO) cargo trades were reported.
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