Analysis
Integr8 Fuels: Bunker market shifts focus to supply concerns – Will this last?
‘At the moment tightness in products is still the main price support and watching refining margins may well be a good place to focus in the next few weeks,’ shares Steve Christy.
By Steve Christy, Research Contributor, Integr8 Fuels
[email protected]
26 May 2022
Crude prices are higher, especially for light/sweet fuel grades
A month ago, Brent futures were around $105/bbl and there were real concerns about inflation, much slower economic growth and downwards revisions to oil demand. Despite these bearish signals, Brent futures are almost $10/bbl higher than a month ago, at close to $115/bbl!
Low stock and product supply are the primary issue
Clearly something in the market is more significant than these bearish factors, and that is on the supply side. Oil product supply is tight and stock levels low, centred on lighter products such as middle distillates and gasoline. This in turn has supported incredibly high refinery margins. At the same time, despite calls from the US, OPEC has made no significant move to raise crude production, and in fact output from some OPEC+ countries has actually fallen.
These supply developments have been more than enough to reverse what was a market focus on bearish economic factors to a market focus on the current squeeze on product supply.
Extraordinary refinery margins are the tell-tale sign
The current extremely tight position in the products markets is clearly represented in the graph below. This shows a long-run indication of average refinery upgrading margins and just how high they are today.
Average refining upgrading margins increased to close to $30/bbl two weeks ago, with:
- strong demand in Europe (partly replacing Russian supplies) and a period of refinery maintenance;
- gasoline demand picking up in the US against a low stocks position;
- a strong pull on Middle East product exports going east and west;
- strong gasoline and gasoil buying in the east, also against a low stocks position.
The key here is strong gasoline and middle distillate demand against low stocks positions, and this has created a spike in refinery margins nothing like we have seen in recent years. Although current margins are still exceptionally high, with an average indication around $20/bbl, they have turned a corner and are declining. In Europe, product stocks have started to rise (albeit slowly) and significant volumes from the Middle East and India are heading in this direction (as a further indicator, product tanker earnings are also at high levels, unlike earnings in the crude tanker sector). In the US, gasoline remains strong, but middle distillates have eased, bringing down refinery margins. Looking ahead, US gasoline could also ease as more Europe exports arrive on the US east coast.
In Asia there is a mixture, with refinery outages supporting gasoline margins however, middle distillates are easing similar to other markets. The ‘curved ball’ is China and what happens next. Indications are that refinery runs and product exports have been low, but exports could rise as domestic oil demand continues to be hit by big city lockdowns. However, lockdowns are expected to ease, and Shanghai is likely to ease restrictions during June. Chinese oil demand will pick up as a result; but what will be the extent of refinery runs and product exports as lockdowns ease?
Overall, refinery margins have been extraordinarily high and reflect the tightness in the products markets and prices; they are still extremely high in historical terms, but they are falling.
The pressure has been on products, hence the surge in refinery margins, but crude supply has also been constrained. Clearly Russian production and exports have been hit by the international responses to the invasion of Ukraine, and Russian output down by around 1 million b/d over the past few months.
Crude supplies are also an issue – even outside Russia
Russia is part of the OPEC+ group and so the loss here has affected the overall production from the group. However, combined crude production from all the other OPEC+ countries has actually fallen by around 0.5 million b/d since the Russian invasion. This has created a ‘double whammy’ in terms of crude supply constraints over the past couple of months.
The reduction in OPEC+ crude output is not a group strategy, but a consequence of production losses in some countries and muted increase is supplies from those countries with spare capacity; namely Saudi Arabia, UAE and Kuwait. The US has made calls for OPEC to raise production in the wake of high prices, but the three ‘spare production’ countries have only increased output by 0.25 million b/d over the past couple of months; against a drop of almost 1 million b/d from Russia.
The situation has then been hugely compounded by production losses in other OPEC+ countries, specifically Kazakhstan, Libya, Nigeria, Angola and Malaysia. The w loss from these countries has amounted to 0.75 million b/d since February. Hence the overall 0.5 million b/d fall in output from the OPEC+ group outside Russia since February.
The other very significant development here is that all the production gains are in countries typically producing heavy, sour crudes, whilst all the losses are in countries producing lighter, sweet crudes. This has only exacerbated the pressures and prices on the gasoline and distillate markets. However, at the same time it has also weakened the relative pricing for high sulphur fuel oil
The bunker market in Singapore has seen extreme price moves
These dynamics have hit the Singapore market, with VLSFO prices up on the back of market developments and also driven higher because an anticipated drop in imports. Conversely, Singapore HSFO prices fell as imports are forecast to rise, not least with Russian volumes finding their way east rather than west.
The net result is that the Singapore VLSFO/HSFO price differential has widened enormously over recent weeks, from only $80/mt at the end of April to more than $300/mt currently (and now much wider than the $160/mt spread in Rotterdam).
Monitoring refining margins
Summarising, the gasoline and middle distillate markets have led oil prices higher over recent weeks and although refinery margins are still very high, they are falling. These developments have taken the wind out of the bearish economic factors as a main market focus. There are always a lot of factors that influence prices and price direction and the bearish issues haven’t gone away. However, at the moment tightness in products is still the main price support and watching refining margins may well be a good place to focus in the next few weeks to see if this is maintained or not.
Photo credit: Maxim Hopman on Unsplash
Published: 27 May, 2022
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Analysis
JLC China Bunker Market Monthly Report (March 2024)
China’s bonded bunker fuel sales grew in March, as the shipping industry recovered gradually and sellers actively boosted sales on the back of ample supply and high inventories.
Beijing-based commodity market information provider JLC Network Technology Co. recently shared its JLC China Bunker monthly report for March 2024 with Manifold Times through an exclusive arrangement:
Bunker Fuel Demand
China’s bonded bunker fuel sales surge in March
China’s bonded bunker fuel sales grew in March, as the shipping industry recovered gradually and sellers actively boosted sales on the back of ample supply and high inventories. Domestic LSFO prices were lower than those in Singapore and other neighboring ports, incentivizing shipowners or operators to refuel their vessels in China, with bunkering volume in Shanghai and Zhoushan rising considerably.
The country sold about 1.82 million mt of bonded bunker fuel in the month, with the daily sales up 13.59% month on month to 58,658 mt, JLC’s data shows.
Sales by Chimbusco, Sinopec (Zhoushan) and China ChangJiang Bunker (Sinopec) came in at 540,000 mt, 630,000 mt and 30,000 mt in March, while those by suppliers with regional bunkering licenses settled at 558,400 mt. At the same time, SinoBunker sold about 60,000 mt of bonded bunker fuel, the data indicates.
China’s bonded bunker fuel exports rise in first two months
China’s bonded bunker fuel exports rose in the first two months of this year, underpinned by fresh quotas and larger production.
The country exported a combination of 3.02 million mt of bonded bunker fuel in January-February, growing by 3.13% from the same months in 2023, JLC estimated, with reference to data from the General Administration of Customs of the PRC (GACC).
Heavy bunker fuel exports totaled about 2.85 million mt in the two months, accounting for 94.13% of the total, while light bunker fuel exports were 177,500 mt, accounting for 5.87%.
The increase in the exports mainly came as China released this year’s first batch of quotas on LSFO exports at the end of 2023. Though refiners’ LSFO production margins were relatively poor, they ramped up their production amid new quotas, which buoyed the exports. China’s LSFO output totaled 2.57 million mt in January-February, with the daily output gaining 2.69% year on year to 42,850 mt, JLC’s data shows.
In January alone, China’s bonded bunker fuel exports settled at 1.78 million mt, jumping by 11.93% month on month and 34.71% year on year.
However, the exports plunged to 1.25 million mt in February, down by 29.99% month on month and 22.75% year on year. Bunkering business at Chinese ports was halted during the Chinese New Year holiday, and customs’ clearing procedure for export was also affected by the holiday. In addition, the operation of many ports was hit hard by heavy snow and freezing rains, adding to the downward pressure on the exports.
Domestic-trade bunker fuel demand rises in March
Domestic-trade heavy bunker fuel demand recovered mildly in March, as the shipping industry rebounded after the Chinese New Year holiday. However, the demand growth was still limited as some shipowners still suspended services and the market was dominated by wait-and-see sentiment amid high prices.
Domestic-trade heavy bunker fuel demand was estimated at 430,000 mt in the month, a gain of 70,000 mt or 19.44% from a month earlier, JLC’s data shows.
Meanwhile, domestic-trade light bunker fuel demand was estimated at about 140,000 mt, a gain of 20,000 mt or 16.67% from a month earlier, the data indicates.
Bunker Fuel Supply
China’s bonded bunker fuel imports soar in Jan-Feb
China’s bonded bunker fuel imports soared in January-February 2024, due to a low base a year earlier.
The country recorded 581,900 mt of bonded bunker fuel imports in the two months, a surge of 27.36% year on year, with 359,200 mt in January and 222,700 mt in February, JLC estimated, with reference to data from the GACC.
China’s bonded bunker fuel imports dived to a record low in January-February 2023, as bunkering demand had not fully recovered from the epidemic, also because of high freight rates and ample domestic supply. The imports totaled only 456,900 mt in the first two months of 2023, tumbling by 48.01% year on year.
On the other hand, Chinese refiners boosted LSFO production in January-February 2024, limiting the import growth. These refiners produced about 2.57 million mt of LSFO in the two months, with the daily output climbing by 2.69% year on year to 42,850 mt, JLC’s data shows.
Russia became the largest bonded bunker fuel supplier in the first two months of this year, exporting 276,800 mt to China, accounting for 47.57% of the latter’s total imports. Malaysia ranked second with 186,800 mt, accounting for 32.10%, followed by South Korea with 95,800 mt, accounting for 16.46%. Japan climbed to the fourth place with 21,500 mt, occupying 3.69%, while Singapore slipped to the fifth place with only 1,000 mt, making up 0.17%.
In China’s bonded bunker fuel market, only HSFO and MGO are still mainly imported, while LSFO is rarely imported as its import efficiency is relatively low amid steep freight rates.
Domestic-trade bunker fuel supply increases in March
Domestic-trade heavy bunker fuel supply improved in March, as availability of some blendstocks (such as low-sulfur residual oil and shale oil) increased.
Chinese blenders supplied about 460,000 mt of domestic-trade heavy bunker fuel in the month, a rise of 60,000 mt or 15% from February, JLC’s data shows.
Similarly, domestic-trade MGO supply rose to 160,000 mt in March, up 30,000 mt or 23.08% month on month, the data shows. Refineries’ enthusiasm for MGO production improved in March, as domestic MGO prices moved up along with domestic oil products.
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JLC Network Technology Co., Ltd is recognized as the leading information provider in China. We specialized in providing the transparent, high-value, authoritative market intelligence and professional analysis in commodity market. Our expertise covers oil, gas, coal, chemical, plastic, rubber, fertilizer and metal industry, etc.
JLC China Bunker Fuel Market Monthly Report is published by JLC Network Technology Co., Ltd every month on China bunker market, demand, supply, margin, freight index, forecast and so on. The report provides full-scale & concise insight into China bunker oil market.
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Related: JLC China Bunker Fuel Market Monthly Report (February 2024)
Related: JLC China Bunker Market Monthly Report (January 2024)
Note: China-based commodity market information provider JLC Technology has been providing Singapore bunkering publication Manifold Times China bunker volume data since 2020. Data from earlier periods are available here.
Photo credit: JLC Network Technology
Published: 11 April 2024
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