Singapore’s Hi-5 spread narrowest in five months on weaker LSFO demand

Ample low sulfur fuel oil supplies in the world's largest bunker hub of Singapore have narrowed the spread against the 380 CST high sulfur fuel oil grade to the weakest level in five months, reducing shipowners' savings from scrubber investments, traders said Nov. 27.

Higher inflows of replenishment LSFO cargoes in Singapore due to workable East-West arbitrage margins have weighed on prices amid slower bunker demand.

Platts, part of S&P Global Commodity Insights, assessed the upstream FOB Singapore marine fuel 0.5%S cargo value against the corresponding 380 CST HSFO assessment, called the Hi-5 spread, at $94.09/mt on Nov. 26, narrowing $7.86/mt on the day.

The spread was the narrowest since $90.04/mt on June 24.

Traders said bunker demand has slowed due to a weaker economic growth outlook in Asia in the near term and geopolitical tensions along the Red Sea due to the Iran-Israel conflict, leading to a drop in the delivered LSFO premiums.

Platts assessed the benchmark FOB Singapore marine fuel 0.5%S cargo's cash differential to the Mean of Platts Singapore marine fuel 0.5%S assessment at a premium of $3.53/mt on Nov. 26, down 33 cents/mt on the day and the lowest since $3.35/mt on Aug. 15.

LSFO stocks in Singapore for prompt LSFO supply are expected to remain elevated in the first half of December, with arbitrage arrivals of 600,000 mt or higher, according to industry sources.

The East-West spread between the Singapore marine fuel 0.5%S cargo and the FOB Rotterdam 0.5%S barge assessment widened to an average of $57/mt in November, from $47.46/mt in October.

Some suppliers said they are keen to offer balance-November and December LSFO ex-wharf cargoes at cheaper prices to draw down stocks in the second half of November.

"The lack of December [LSFO] inquiries is quite worrying, there are also not many inquiries [for smaller parcels] flowing in either," a Singapore-based trader said.

However, the Hi-5 spread -- which has averaged $129.64/mt so far in 2024, narrowing 12.3% from the same period in 2023 and more than halving from $261.09/mt in full-year 2022 following the start of the Russia-Ukraine war -- was still viable for scrubber uptake.

"More of our vessels will come fitted with scrubbers in 2025," said a source at a shipping company. "A close to $100/mt spread is surely sufficient enough to install scrubbers to enjoy the cost-savings."

HSFO valuations

HSFO stockpiles have been mostly sufficient in Singapore, with upstream valuations healthier compared with LSFO, supported by stronger demand from term contracts, bunker suppliers said.

Geopolitical tensions due to the Iran-Israel war have strengthened HSFO demand as ships travel longer distances, avoiding the Red Sea.

A Singapore-based trader said Donald Trump's return to office as the US president could lead to some uncertainty for the HSFO market in 2025, amid potential developments in the Russia-Ukraine war.

The availability of Russian and Venezuelan barrels was seen as adequate in Singapore and Malaysia, keeping overall stockpiles healthy, according to traders.

Since the week ended Nov. 22, some larger HSFO suppliers in Singapore have been working to fix deals for early-December inquiries, as their barging slots for very prompt lead times are mostly already committed for term contract nominations.

"[HSFO] demand from term contract clients might still be healthy. Maybe there are fewer vessels buying off the spot market lately," the Singapore-based trader said.

HSFO bunker sales in Singapore, including bio-blended products, rose 11.2% on the month and 19.4% on the year to a record high of 1.84 million mt in October, according to preliminary data from the Maritime and Port Authority of Singapore.