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Argus Media: Asian LSFO margins exceed two-year lows on high supply

16 Dec 2022

Singapore low-sulphur fuel oil (LSFO) margins against Dubai crude values have fallen to over two-year lows, against higher inflows to the city-state and demand possibly taking a hit from recessionary fears moving forward.

15 December 2022

Margins fell to $7.82/bl on 13 December, the lowest levels since the $7.72/bl on 2 November 2020, according to Argus’ assessments.

The fall is likely the result of higher low-sulphur residual inflows to Singapore from the west of Suez and Asia-Pacific this month, market participants said, estimating it to be around 2mn t. Total low-sulphur residual inflows to Singapore in December are projected to be around 2.35mn t so far, higher than the average of 2.18mn t/month in 2021, according to data from oil analytics firm Vortexa.

Incremental LSFO inflows to Singapore from Kuwait – and expectations of more to come – is likely pressuring margins as well, traders said. Kuwait’s state-owned KPC sold the first 100,000t (645,000 bl) LSFO cargo from its new 615,000 b/d Al-Zour refinery for 28-29 November loading. The cargo was likely sold to BP and loaded on the tanker Ridgebury Nicholas A from Kuwait over the same dates, and Fleetmon data shows the tanker’s current position is in the Malacca Strait.

Al-Zour is a topping refinery which produces LSFO mainly for local power plants, with the excess to be exported. Al-Zour is projected to produce 10-12mn t of LSFO per year when all units come online, sources close to the company said, of which around 5mn t/year will be exported after domestic power generation and bunker demand is fulfilled. Apart from the LSFO cargo, KPC has sold two 80,000t heavy fuel oil (HFO) cargoes for December-loading, with one more 80,000t cargo for 20-21 December loading in the process of being sold.

India’s state-controlled BPCL also recently resumed its VLSFO exports, offering three 20,000t cargoes for November and December-loading, its first offers since March. The first cargo has likely been discharged in Singapore in end-November, according to Vortexa data.

Singapore’s onshore residual fuel oil inventories were at three-week highs of 20.306mn bl in the week to 7 December, according to Enterprise Singapore data, also just slightly lower than average inventory levels in December 2021 at around 20.375mn bl. Projected higher inflows to the city-state could increase supplies to higher than year-earlier levels, depressing margins.

Market participants also noted that bunker suppliers clearing stocks with the year-end closing of books could contribute to more sales and an injection of supplies into markets, though one said that not all companies’ financial years conclude in December. Traders also said that fears of an impending recession have not hit bunker demand yet but could be factored into crack and spread values from January onward.

Delivered premiums, or the price of VLSFO bunkers over cargo, have been trending upwards so far in December to an average of $36/t compared to $29/t in November as a result of tight prompt supplies, according to Argus data.

Availabilities are now improving, local traders said, although premiums are also set to spike during the festive period for prompt deliveries as is typically the case. But overall demand sentiment is increasingly turning bearish going into the new year.

“I expect demand to be down significantly in the first quarter of next year relative to this year”, a local trader said.

But VLSFO bunker prices in Singapore are currently significantly lower than in competing ports in South Korea and to a lesser extent, China, which could shift some demand to the city-state.

Singapore noted a strong increase in bunker sales in November but is set to see total consumption this year decline by about 2mn t relative to 2021, to about 48mn t.

By Sarah Giam and Sammy Six

Photo credit and source: Argus Media
Published: 16 December, 2022

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