Singapore's LSFO downstream premiums capped, competition to intensify in March

Lackluster downstream low sulfur fuel oil demand in Singapore -- the world's largest bunkering hub -- has persistently pressured delivered premiums amid competition, but is likely to stiffen in the near term, gradually narrowing suppliers' margins, traders said March 19.

Despite the bleak downstream outlook for the rest of March, traders anticipate that stronger demand in April could lift Singapore's delivered premiums, but competition from China's Zhoushan hub might limit significant upsides.

The Platts Singapore-delivered marine fuel 0.5% bunker premium to benchmark FOB Singapore Marine Fuel 0.5% cargoes sank to an over-six-month low of $11.99/mt on March 15, before inching up to $12.53/mt, and was last assessed lower at $11.54/mt on Sep. 7, 2023, S&P Global Commodity Insights data showed.

"Demand has been quite muted these days, and suppliers are pressured to move volumes and barges," a Singapore-based trader said March 19, adding that buyers' bid levels have also been aggressive.

The Platts-assessed spread between delivered and ex-wharf Singapore marine fuel 0.5%S bunkers, or the barge spread, narrowed to average $6.58/mt over March 1-18, from $12/mt in February and $16.86/mt in January, S&P Global data showed.

The barge spread should ideally be in the $5-$11/mt range for suppliers to reach breakeven with operational costs for downstream bunker deliveries, industry sources said.

Amid lean bunker demand, some players around the Singapore hub have lowered offers more competitively, even for prompt refueling requirements, to capture the limited flows of end-users' inquiries, dampening market sentiments for the near term, local traders said.

Barging schedules were adequate to match demand for early refueling dates within five to seven-day lead times, with mostly no later than nine days ahead, according to bunker suppliers.

"Some suppliers are struggling [to fix deals]," a Singapore-based bunker supplier said, highlighting the pressure on sellers to conclude deals despite weaker downstream premiums.

Meanwhile, term ex-wharf marine fuel 0.5%S barrels for balance March were recently signed at premiums in the $8-$10/mt range to the benchmark FOB Singapore marine fuel 0.5%S cargo values and were met with a weak buying appetite, traders said.

Previously, ex-wharf marine fuel 0.5%S cargoes for March's term contractual supply were inked slightly higher in the $11-$15/mt premiums, traders added.

"Prompt cargo availabilities are pressured, fundamentals are still weak and it's unsure when we will see a recovery," a second trader said March 19.

Most recently, a replenishment cargo of around 860,000 barrels, or 135,000 mt, of LSFO sourced from Kuwait's Al-Zour refinery reportedly landed in Singapore over March 16-18, while another shipment comprising around similar volumes from the same origin might land in Singapore over the second week of April, industry sources said.

Sales of the International Maritime Organization-compliant bunker grade -- inclusive of bio-blended low sulfur fuel oil -- tumbled to a three-month low of 2.570 million mt in February, marking a 11.6% decline on the month despite a 9.4% increase on the year, the latest preliminary data from the Maritime and Port Authority of Singapore showed.

North Asia poses competition

Amply supply of LSFO cargoes weakened market fundamentals at the focal North Asian bunkering hub of Zhoushan, leading bunker premiums to slide despite a recent uptick in demand, industry sources said.

"Delivered LSFO were heard traded at a small premium or flat to Mean of Platts Singapore [in Zhoushan]. They may be taking more demand from Singapore to some extent, but some shipowners still prefer it here," the first Singapore-based trader added.

The Platts-assessed spreads of Zhoushan-delivered marine fuel 0.5% bunker versus the same delivered grade in Singapore averaged minus $11.83/mt March 1-18, compared with a premium of $1.05/mt in February and $13.95/mt in January, S&P Global data showed.

LSFO production in January was at 1.33 million mt, while the output for February was estimated at about 1.2 million mt, the latest JLC data showed, while traders expect a recovery in March's output to keep inventories well supplied.

In fact, at least one of China's domestic oil majors' refineries around eastern China is reportedly producing large volumes of LSFO in March, resulting in an oversupply and fewer tankage spaces amid the accumulation of stockpiles, local bunker suppliers said.

Traders also estimate that domestic LSFO production could remain elevated before the summer months, with some refineries possibly entering turnarounds.

"Supply of LSFO is still increasing," a local bunker supplier said, conveying pessimistic sentiments as bunkering premiums eased despite demand firming, causing weakening supply-demand dynamics.

LSFO supply also outstripped demand in the second half of February, when the Zhoushan port faced inclement weather events, muting trading activities, China's bunker suppliers said.

The Platts-assessed premiums for Zhoushan-delivered marine fuel 0.5% bunker over FOB Singapore marine fuel 0.5% cargo values averaged $4.25/mt in March to date, down from an average of $28.02/mt in February, S&P Global data showed.