Asia residual fuels: Key market indicators for April 18-22

The Singapore low sulfur fuel oil market is likely to see supply tightness in the April 18-22 trading week as strong gasoil crack spread continuously draws LSFO blending components to the middle distillate market.

The high sulfur fuel oil market is expected to see support due to ongoing specification issues, which limits the number of high sulfur bunker suppliers who have spot availability.

Crude oil futures opened higher in Asia April 18, with June ICE Brent trading at $112.40/b at 0300 GMT, up from $108.61/b at the 0430 GMT Asian close April 14.

Marine fuel 0.5%S

** Singapore Marine Fuel 0.5%S May-June swap spread strengthened in the week of April 11-14 due to supply tightness in cutter stocks. The spread was assessed at $26.50/mt on April 14, up from $20.50/mt on April 8, S&P Global Commodity Insights data showed.

** The downstream low sulfur bunker fuel market was likely to remain supported, but equally, not necessarily strengthen significantly from prevailing lofty levels that it has reached in the recent past, according to market sources.

** Even as the premium for IMO-compliant marine fuel sold in Singapore on a delivered basis had strengthened in the recent past, the differential -- to benchmark upstream Singapore Marine Fuel 0.5% cargo -- has remained capped, a situation that was likely to prevail, if not inch lower in the near term, market sources said.

** Steep backwardation at the front of the Singapore marine fuel 0.5% swaps curve would likely instigate sellers in the downstream market -- especially those that offer product on an ex-wharf basis -- to make competitive offers in a bid to move oil than to hold and roll it to the next month, traders said.

** Even as the premium for Singapore-delivered marine fuel 0.5% bunker averaged $34.87/mt in the week ended April 14, up from the previous week's average of $29.92/mt, the same for product sold on an ex-wharf basis has more or less remained steady at $25.87/mt, down a notch from the previous week's average of $25.92/mt, S&P Global data showed.

** Limited LSFO inventories in Japan is expected to cap available stockpiles for bunker sales, while traders expect delivered premiums to stay supported throughout April.

** Rising LSFO stockpiles in South Korea is expected, while local refineries are expected to gradually wind down springtime maintenances and restart operations, market sources said.

** Healthy demand for both the Zhoushan LSFO ex-wharf and delivered grades is likely to buoy premiums, while buyers are not anticipating lockdowns in Shanghai to impact bunker supplies, sources said.

High sulfur fuel oil

** Both 180 CST and 380 CST grades are expected to remain supported over April 18-22 despite the weakening market structure in the European market.

** The 180 CST grade found strong demand from South Asia, especially from Pakistan. Pakistan State bought 135,000 mt of 180 CST HSFO with maximum 3.5% sulfur for delivery in the first half in May.

** In the downstream bunker market, the Singapore delivered bunker premium to over Singapore 380 CST high sulfur fuel oil cargo assessment was likely to trade at prevailing multiyear high levels.

** Traders attributed this to tight availability on account of less-than-usual Russian oil finding its way into the marine fuel oil pool and a still-prevailing concerns over contaminated fuel at the city-state, which had limited the number of suppliers to source product from.

** Tight prompt availability has meant that the earliest that most suppliers are able to offer product to the spot market on a delivered basis is around 9-10 days forward.

**The premium for Singapore-delivered 380 CST high sulfur bunker has sky-rocked in the recent past. The differential averaged $62.24/mt in the week ended April 14, up from the previous week's average of $33.88/mt, S&P Global data showed.

** The lifting of quarantine measures since April 1 led to an influx of bunker demand, which traders expect likely to further tighten Hong Kong's HSFO inventory through May, as suppliers source for replenishment cargoes in the meantime.

** As HSFO supplies tighten at Zhoushan and Shanghai, traders expect bunker premiums to stay supported, while severe port congestions at both ports have reportedly not affected demand, according to local bunker suppliers.

** Sellers in South Korea are eager to move HSFO cargoes as downstream bunker demand edges higher, while buyers divert requirements and skip bunker-only calls at Singapore due to the recent surges in HSFO delivered premiums at the world's largest bunker hub, South Korea-based traders said.