Asia's LSFO cash differential drops to widest discount in over 2 years

Asia's low sulfur fuel oil cash differential slumped to its lowest level in more than two years July 19, weighed down by higher arbitrage volumes coming into the region, aggressive offers and muted buying interests for early August-loading cargoes on the physical trade window this week.

Platts assessed the cash differential for Singapore marine fuel 0.5%S cargo to the Mean of Platts Singapore marine fuel 0.5%S assessments at a discount of $1.92/mt at the Asian close July 19. The differential was at the widest discount since June 1, 2021, when it was assessed at a discount of $2.17/mt, S&P Global Commodity Insights data showed.

The cash differential, which flipped into a negative territory for the first time in more than two months in the week ended July 13 on the back of competitive offers from Glencore, has come under renewed pressure in the week to July 20 primarily due to persistently weaker offers from Trafigura in the absence of bids during the Platts Market on Close assessment process for the last three consecutive sessions.

"The [Asian] LSFO market is currently very bad ... Too many suppliers are competing for getting out their barrels," a Singapore-based trader said, adding that at least around five vessels have been fixed from Northwestern Europe to bring in supplies to Singapore when the West-East arbitrage window opened a couple of weeks earlier.

Meanwhile, regular shipments from Kuwait's Al-Zour refinery were also adding to the supply glut in the region, which is seeing a sluggish downstream demand, trade sources said.

Inclusive of bio-blended low sulfur fuel oil, total sales of the International Maritime Organization-compliant bunker grade slipped to the lowest since February at 2.393 million mt in June, according to the latest data from the Maritime and Port Authority of Singapore released on July 14.

Although some traders said the differentials have gone down too low too soon, it wasn't that weak for the overall market situation, which should see some possible upsides in the coming weeks, as the phase for the bulk of arbitrage inflows has been over. They added that the first half of August should see marginally lesser arrivals than H2 July.

"I personally don't think it is that bad ... Some of the cargo players are expecting 'tank tops' and they would need to sell cheap to make space for incoming barrels," another trader said.

"Gasoline cracks are still strong. So, it doesn't look like there would be more VLSFO coming out from regional refineries [in the near term]," the trader added. However, at least two other trade sources said they were not expecting any major upswing in regional LSFO production in the coming weeks despite several Asian refineries returning from spring turnarounds.

The Platts Singapore front-month crack spread for the marine fuel grade against Brent crude, which has dropped about 47% so far in July, was assessed at $6.76/b July 19, the lowest since May 11 when it was assessed at $6.61/b, S&P Global data showed. The front-month crack for August was pegged at around $6.75/b in mid-afternoon trades July 20.

Additionally, lackluster end-user demand has depressed Singapore's LSFO delivered and ex-wharf bunker premiums, traders said. With the inflows of replenishment cargoes, supply is also expected to remain ample for the requirements of the downstream market in the near term, they added.

Two replenishment shipments totaling 1.72 million barrels, or 270,805 mt, of LSFO hailing from Kuwait's Al-Zour Refinery were scheduled to discharge in Singapore on July 21 and July 30. This follows a previous import of 849,999 barrels, or 133,858 mt, from the same origin to Singapore on July 5, according to the latest data by Kpler.

Most recently, the ex-wharf marine fuel 0.5%S cargoes for balance-July term contractual supply were seen offered around premiums of $5-$8/mt to the benchmark FOB Singapore marine fuel 0.5%S cargo values. The premiums were almost halved to one-third of the $13.50-$15/mt level concluded earlier during late June to early July, according to local traders.

Barge schedules were largely healthy and adequate with prompt lead times ranging around four to six days out, or even as early as for same-day delivery, bunker suppliers said. Anxious bunker suppliers were eagerly selling out front refueling slots owing to the limited inquiries seen in recent days, they added.

"Suppliers seem to be in a hurry to make more ullage and clear [stocks] right now ... So, whether [LSFO bunker] stems are prompts or not, there's not much of [a difference] in premiums," a Singapore-based bunker supplier said July 20.

Platts Singapore-delivered marine fuel 0.5%S bunker premiums over the FOB Singapore Marine Fuel 0.5%S cargo values softened to an average of $15.50/mt over July 3-19, down from the $20.14/mt across June, according to S&P Global data.

Platts is part of S&P Global.