Sarah Giam and Sammy Six of global energy and commodity price reporting agency Argus Media on Thursday (5 August) published a report highlighting the rise in HSFO prices for the Asian markets:
The backwardation in the Asian 180cst and 380cst high-sulphur fuel oil (HSFO) markets has widened to multi-month highs, driven by higher power generation and bunker fuel demand.
The backwardation in 180cst HSFO markets, or the premium of prompt prices to forward values, widened from $5.75/t on 3 August to over a nine-month high of $6/t yesterday, with it last at this level on 15 October 2020, according to Argus’ assessments. Asian 180cst margins against Dubai crude values also strengthened to a three-month high of -$5.63/t yesterday, the highest since -$5.40/bl on 7 May. The backwardation in 380cst HSFO markets widened from $4.25/t on 3 August to over an eight-month high of $5.25/t yesterday. It was last wider on 13 November 2020 at $6.75/t.
Increased support for 180cst HSFO markets has come from higher demand from Pakistan’s state-owned PSO for August- and September-delivery cargoes because of higher temperatures and lower hydroelectricity availability. PSO has sought six 65,000t (419,300 bl) 180cst HSFO cargoes, or 390,000t (2.51mn bl), for August and September delivery, two of which have been purchased. PSO has also received offers for another two cargoes, which it will decide whether to accept over the next few days. PSO’s current demand is well above year-earlier levels when it bought 130,000t of HSFO for September 2020 delivery and sought an unconfirmed volume for August delivery, though the results for that tender could not be confirmed.
Kuwait’s state-owned KPC also bought heavy fuel oil (HFO) with a maximum 380cst viscosity for July-September delivery, a reversal from last year when it was selling cargoes, as new fuel oil cracking units, part of state-owned KNPC’s Clean Fuels Project, have significantly reduced fuel oil production capacity. KPC bought at least one 80,000t (516,000 bl) cargo of maximum 380cst HFO for delivery each month from July-September, compared with last year when it sold one 80,000t HFO cargo each for loading in July and August and 120,000t (774,000 bl) for loading in September 2020.
Kuwait has imported nearly three times as much fuel oil this year than it did in all of 2020 as of June. But imports may fall when the 615,000 b/d al-Zour refinery comes on line, which has been configured to produce as much as 215,000 b/d of fuel oil at full capacity – though al-Zour might not begin operations before December. The September-October backwardation in both HSFO markets also widened to over 1½-year-highs, the highest since 23 January 2020. The 180cst spread widened from $5.50/t on 3 August to $6/t yesterday, with it last higher at $7.75/t on 23 January 2020. The 380cst spread widened from $5/t on 3 August to over a 1½-year high of $5.75/t yesterday, with it last higher at $6/t on the same day.
Rising HSFO demand for power generation has limited availability of the product for the bunker market in Singapore, said several local bunker traders. Prompt deliveries of HSFO bunkers are therefore tight, with average lead times of up to about nine days compared with the more typical six or so days. “Suppliers of HSFO are not willing to improve their offers given limited supplies,” said a local trader. But barge availabilities have been observed as largely normal, another trader said.
Demand for HSFO-grade bunkers in Singapore has been strengthening over the past few months, in line with a higher premium of very low-sulphur fuel oil (VLSFO) to HSFO, which incentivises scrubber construction. The Hi-5 spread — the premium of VLSFO to HSFO — averaged $115/t over the first seven months of this year compared with $65/t during the last quarter of last year.
Solid demand for HSFO in Singapore is reflected in the city state’s official bunker consumption data, which show that roughly one in every four barrels sold remains of the high-sulphur grade.
Argus reported an average of 2.07 HSFO spot deals each day in June and July, up from 0.87 over the first five months of this year.
Delivered premiums of HSFO, or the premium of bunker prices to cargo values, averaged $6.22/t in July, up slightly from $5.74/t in June, according to Argus’ data.
Photo credit and source: Argus Media
Published: 6 August, 2021
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