Singapore's ex-wharf LSFO term premiums fall in December amid ample supply

Term premiums for Singapore's ex-wharf 0.5%S marine fuel for December-loading barrels were concluded at lower levels compared with November, traders said Dec. 11, as ample supply and bumpy spot bunker demand dampened forward sentiment and pressured valuations.

December's ex-wharf term contracts were mostly inked at premiums of around $6-$10/mt to the benchmark FOB Singapore Marine Fuel 0.5%S cargo values, traders said, below the $13-$17/mt premiums seen for November.

Most recently, bids for December's ex-wharf LSFO term contracts hovered at around low-single-digit premiums, in line with weaker upstream valuations, traders added.

Steady arbitrage inflows of LSFO cargoes from the West to the Far East gradually weighed on product fundamentals, with Singapore being well supplied since November. Meanwhile, lagging demand in the downstream market has made buyers more cautious about procuring ex-wharf cargoes at elevated premiums, aiming to avoid further pressure on profit margins.

Furthermore, weaker-than-expected import demand from China meant that stockpiles were not being drawn down as quickly as traders had initially hoped.

For upstream valuations, the FOB Singapore Marine Fuel 0.5%S cargo's cash differential over the Mean of Platts Singapore Marine Fuel 0.5%S strip assessment tumbled to a near eight-month low of 14 cents/mt on Dec. 10, and was last assessed lower at minus 72 cents/mt on April 16, S&P Global Commodity Insights data showed.

Weakness in LSFO fundamentals was also reflected in paper markets, as Singapore's 0.5%S marine fuel M1/M2 intermonth spread narrowed to 75 cents/mt on Dec. 10, the tightest since June 30, 2021, when the spread was assessed at 15 cents/mt, the data showed.

Subdued downstream demand

Despite the usual anticipation of a significant uptick in LSFO bunker demand ahead of the year-end festive period, demand has been relatively muted compared with previous years, with moderate levels seen on some trading days. Pressures from abundant LSFO supply and aggressive bids, owing to lackluster downstream premiums, also prompted ex-wharf sellers to gradually lower their offers.

"Typically, December and January should have some pickup [in demand], but we haven't seen that ... It has been a terrible fourth quarter," a regional bunker trader said.

The Platts-assessed Singapore-delivered Marine Fuel 0.5%S bunker premium over the benchmark FOB Singapore Marine Fuel 0.5%S cargo averaged $13.32/mt over Dec. 1-10, down 14.32% from the November average of $15.54/mt, Commodity Insights data showed.

Although the flow of spot LSFO inquiries fell short of stronger expectations, traders noted that some players could still draw down stockpiles and meet baseline sales volumes based on nominations under monthly or quarterly term contracts, which may eventually help support overall sales volumes around Singapore.

However, when it comes to the spot market, traders lamented the bearish bunker premiums.

"Demand looks weak, and everyone is fighting for the same cake," a Singapore-based bunker trader said.

Although some downstream suppliers do not foresee any significant pickup in demand for the remaining weeks of Q4, others are hopeful of selling some January cargoes, as buyers may look to meet bunker requirements earlier in advance of the Lunar New Year festive holidays, traders said.

In the quarterly LSFO ex-wharf term contract market, contracts were signed at premiums in the high single digits, largely due to expectations of quieter demand in the downstream market during the Lunar New Year festive season, although a gradual pickup is quite likely following the holidays.