Kayla Meyertons of global energy and price reporting agency Argus Media on Thursday (20 February) issued a report discussing the impact of Coronavirus on USGC to Singapore fuel oil arbitage:
The coronavirus outbreak has effectively shut arbitrage to export US Gulf coast fuel oil to Singapore as it devastated bunkering demand across Asia.
Chinese bunkering demand has tanked in recent weeks as the novel coronavirus reduced maritime trade flows. Bunker demand typically recovers after the lunar new year holiday, but this year it has not. Demand in Singapore, the world’ largest marine refueling hub for vessels, has also shown little improvement. By some estimates, demand for 0.5% low-sulphur fuel oil (LSFO) from Chinese ports may fall by 10-20% until the virus outbreak is curbed.
Softer fuel oil demand in Asia has shut any LSFO arbitrage for US Gulf coast refiners looking to profit overseas as domestic market activity plummeted.
US Gulf coast 0.5% sulphur fuel oil averaged at $69/t below Singapore LSFO values in January. The discount has since narrowed to an average of $31/t so far in February. Gulf coast LSFO even rose to a $8/t premium over Singapore for the first time since late November earlier this week.
US Gulf coast LSFO activity has already been suppressed as a result of high inventories, and the coronavirus has not made much additional impact, some market participants say.
Gulf residual fuel oil stocks averaged at 17.2mn bl in January, up by 5% from year-earlier levels, according to the US Energy Information Administration.
Recent fog-related closures of the Houston Shipping Channel slowed ship loading, causing shipowners to build up fuel oil inventories. Slower ship traffic also curbed fuel oil demand in the US Gulf coast, in addition to minimal activity prolonged by the recent US President’s Day long weekend.
The arbitrage to Singapore could reopen if Singapore LSFO stockpiles decline. Singapore accumulated a large LSFO stockpile last year in anticipation of the International Maritime Organization’s (IMO) January 1 sulphur cap. The International Energy Agency (IEA) estimates LSFO or fuel oil components to be 7-8mn t in floating storage around the larger Singapore area
The full impact of the coronavirus outbreak on Asia-Pacific bunker fuel demand remains unclear. As demand remains depressed, the arbitrage is likely to remain closed.
Photo credit and source: Argus Media
Published: 21 February, 2020
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