ASIA RESIDUAL FUELS: Key market indicators for Aug 8-12

The Asian low sulfur fuel oil market was likely to come under further pressure from prevailing levels in the Aug. 8-12 week, weighed by increasing supply as regional refiners ramp up output, and on expectations of higher Western arbitrage inflows into Singapore, especially in the second half of August.

The Asian high sulfur fuel oil market was likely to be steady to firm at prevailing levels on expectations of a demand uptick for HSFO as an alternative burning fuel, especially from the utility sector in the West going into peak winter season.

Even so, easing summer demand from South Asian utilities and incremental supplies from the Middle East and Russia may cap any significant upside to the HSFO market, traders said.

Morning trades for the ICE October Brent futures contract were seen at $94.66/b at 0220 GMT on Aug. 8, marginally up from $94.47/b at 0430 GMT on Aug. 5, Intercontinental Exchange data showed.

0.5%S marine fuel

** Expectations of a rise in supply were likely to pressure the upstream Asian 0.5%S marine fuel market, which has seen the cash differential for the benchmark Singapore 0.5%S marine fuel cargo over the Mean of Platts Singapore Marine Fuel 0.5%S assessments to finish the week ended Aug. 6 at $16.50/mt, the lowest since mid-February, S&P Global Commodity Insights data showed.

** The downstream end-user low sulfur bunker fuel market was also likely to see pressure. The Singapore-delivered marine fuel 0.5%S bunker premium over FOB Singapore Marine Fuel 0.5%S cargo assessments averaged $58.93/mt in the week ended Aug. 6, down from July's average of $104.08/mt, S&P Global data showed.

** A softening low sulfur bunker premium has fueled optimism that downstream demand may see an uptick in August, market sources said.

** Despite a steady inflow of inquiries for IMO-compliant bunker fuel, traders at the Middle Eastern port of Fujairah are likely to remain cautious of committing to prompt bunker deliveries even as terminal operations are to come back to normal after recent supply disruptions from inclement weather.

** LSFO production is rising in China and South Korea, market sources said. Chinese domestic refineries have been increasing LSFO production since the government issued new export quotas in early July, traders said. Also, a relatively better refining margin, especially compared to gasoline, was incentivizing refiners to produce more LSFO, traders added. "Since the margin for gasoline collapsed, refiners want to make more [low sulfur] fuel oil," a bunker trader at a South Korean trading house said.

High sulfur fuel oil

** Ample inventories of HSFO are likely to cap delivered bunker premiums at the port of Singapore, as most sellers have sufficient product availabilities to meet prompt requirements, traders said.

** The cash differential for Singapore 380 CST HSFO over the Mean of Platts Singapore 380 CST HSFO assessments has been holding steady since early August. The cash differential averaged $6.10/mt in the week ended Aug. 6, compared with the July's average of minus 23 cents/mt, S&P Global data showed.

** High sulfur bunker fuel supply at Fujairah is expected to return to normal sooner than for the low sulfur grade despite ongoing operational bottlenecks, as some suppliers had refueled barges prior to the disruptions and have adequate stockpiles for prompt bunker deliveries.

** The high sulfur bunker fuel market was likely to be rangebound in China, South Korea and Japan amid ample supply, traders said. Japan typically sees HSFO demand in August from the power sector, but current supply was sufficient to meet demand, a Tokyo-based bunker trader said.