SINGAPORE: The high sulphur fuel oil market could weaken further in July as more supplies of Russian barrels find their way into Asia, traders and analysts said this week.
Reflecting this, cash differentials for HSFO in Asia have continued to stagnate in steady discounts. The 380-cst HSFO cash differential was at a discount of $2.37 a tonne to Singapore quotes on Wednesday, versus a discount of $2.33 the previous day. The market structure for HSFO was also unlikely to recover into a firm backwardation as ample prompt supplies are set to arrive in the coming weeks.
“We expect the market structure to weaken further towards the second half of July with expectations of a potential deluge of Russian-origin cargoes arriving in Fujairah and then flowing to Southeast Asia,” Refinitiv Oil Research analysts said in a note this week.
The balance-month/August timespread for 180-cst HSFO was pegged at a contango of $3 a tonne at the Asia close (0830 GMT) on Wednesday, while that for 380-cst HSFO was pegged at parity, Refinitiv data showed.
Fujairah Oil Industry Zone (FOIZ) inventories for heavy distillates and residues rose 14% from the previous week to 12.62 million barrels (1.99 million tonnes) in the week ended July 4, latest data via S&P Global Commodity Insights showed. The weekly inventory count for heavy distillates was at a year-to-date high. Oil prices rose on Wednesday, clawing back some of Tuesday’s heavy losses as supply concerns returned to the forefront and outweighed lingering worries over a global recession.
China has issued a batch of refined fuel export quotas at 5 million tonnes, sources told Reuters on Wednesday, which would allow refiners to cash out solid exports margins and help ease tight fuel supply in global market.
Shares in Mitsui & Co and Mitsubishi Corp, investors in the Sakhalin-2 gas and oil project, tumbled on Wednesday as tensions between Moscow and Tokyo ratcheted higher with former Russian president Dmitry Medvedev threatening that Japan could be cut off from Russian gas and oil.
The first Venezuelan crude cargoes sent to Europe in two years helped lift the OPEC nation’s oil exports by 61% last month after a series of setbacks earlier in the year, tanker tracking data and documents from state-run PDVSA showed.