Asia residual fuels: Key market indicators for May 30-June 3

The Singapore marine fuel oil market is expected to maintain record-high levels of prices over the May 30-June 3 trading week due to supply tightness of low sulfur fuel oil cargoes coupled with firm bunker demand. LSFO supply has tightened amid a drop in arbitrage inflows and stronger gasoil cracks relative to LSFO, market sources said.

Conversely, high sulfur fuel oil prices are likely to remain under downward pressure on expectations of growing inflows from the Middle East and Russia to Asia.

Crude oil futures were higher May 30 morning in Asia, with July ICE Brent at $120.39/b at 11 am Singapore time (0300 GMT), up from $117.70/b at the Asian close on May 27.

Marine fuel 0.5%S

** Supply tightness is likely to hold up marine fuel 0.5% cargo premium, which hit a record high of $62.25/mt May 27.

** Arbitrage inflow is expected to remain low in June due to steepening backwardation, with the June-July time spread also at a record high of $61.50/mt May 27.

** Despite a record-high marine fuel 0.5%-Dubai crack spread of $34.11/mt, sulfur cutter stocks continue to be drawn away from marine fuel production and into the more profitable gasoil pool, with gasoil-Dubai crack spread even higher at $42.46/mt, resulting in a prolonged shortage of blending components.

** Persistent supply tightness in the Singapore LSFO market is likely to support delivered premiums. The Singapore delivered marine fuel 0.5% premium to benchmark Singapore marine fuel 0.5%S hit an over 28-month high of $91.31/mt on May 27.

** Ex-Wharf premiums for June were also supported by limited cargo availability with offers rising to $90/mt to $100/mt on May 27, compared with earlier offers of $45/mt to $48/mt on May 23.

** The spread between delivered Singapore and Fujairah bunker prices widened due to weak Fujairah prices amid sufficient stocks, and strong Singapore prices. The spread widened to $45/mt on May 27, an all-time high since the launch of the assessment in July 2019, S&P Global data showed.

** Some sellers in the Singapore delivered marine fuel market were able to offer delivered low sulfur bunker a minimum of eight days forward, with most only able to offer delivery a minimum of 11 days forward. Bunker suppliers are typically able to deliver bunker fuel five-seven days ahead of the sales day.

** Most of the North Asian bunkering ports are expected to see supply tightness in the week of May 30-June 3. In Japan, there are refinery glitches and turnaround in May and they are likely to continue to reduce production in June as well, limiting the 0.5% sulfur bunker fuel supply.

** China's refining rates are also likely to remain reduced. Bunker suppliers said supply in Zhoushan was tight and importing fuel oil cargoes hardly made economic sense. As FOB Singapore premiums were strong, importing costs can be higher than the local bunker market, market sources said.

** South Korea's supply tightness is expected to ease in June because SK Energy and S-Oil came back to the spot market for June delivery. For May delivery, only Hyundai Oilbank had enough availability to offer bunker fuel in the spot market.

High sulfur fuel oil

** On the other hand, high sulfur fuel oil market is expected to remain under pressure from growing inflow from the Middle East and Russia.

** 380 CST HSFO flipped into the negative territory May 27 at minus $1.42/mt to MOPS, while 180 CST was also under pressure with the premium assessed at 25 cents/mt May 27.

** The sharp fall in premium is not likely to attract immediate buying as buyers wait to see a floor before making any purchasing decisions.

** High sulfur bunker fuel prices continued to tumble as steady imports cause stocks to build. The delivered Singapore bunker premiums for 380 CST bunker fuel fell to $12.25/mt May 27 from $23.84/mt May 23.

** High sulfur bunker supply is likely to stay sufficient across North Asian bunkering ports as well.