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Asia LSFO bunker fuel market buckles under pressure despite steady demand
16th April 2020 08:15 GMT

 

Spot market differentials for IMO-compliant marine fuels have cracked to the lowest in seven months despite recent data showing firm demand for shipping fuel at the world's biggest bunkering port of Singapore.

 

Cash differentials for Singapore Marine Fuel 0.5% sank to minus $11.80/b Wednesday, just days after the city-state reported a near 12% month-on-month increase in bunker sales for March to 3.08 million mt. April sales are also expected to remain broadly steady from March, according to market participants

Weakness in the marine fuel market may deal a further blow to Asian refiners already struggling with falling margins. While the COVID-19 pandemic has caused massive demand destruction of land and air transportation fuels such as gasoline, gasoil and jet fuel, the marine fuel market had so far fared better given the relatively less stringent restriction on shipping.

But traders said the steep declines in cash differentials suggests that this last pocket of strength in the oil market may be finally buckling under pressure as supplies continue to mount and the market runs out of space to store barrels.

An estimated 10 million mt of low sulfur fuel oil is currently stored in floating and landed storage in and around Singapore. But the glut in the crude oil market has now made it more profitable to store oil barrels, raising competition for the few remaining storage options.

Traders say the cash differentials may remain under pressure as storage economics now require a steep contango to remain viable as charter rates surge.

The Singapore Marine Fuel 0.5% cash differentials are at the lowest since minus $15/mt assessed on September 13, 2019 -- four months before the fuel actually began to be used actively when new IMO sulfur limits came into place on January 1, 2020.

The contango at the front of the Singapore Marine Fuel 0.5% swaps curve has widened to average $9.08/mt so far in April from the March average of $5.11/mt.

During the same period, the outright value of Singapore Marine Fuel 0.5% cargo has dropped 19.69% to average $233.03/mt so far in April as compared with the March average of $290.17/mt, Platts data showed.

Already, market sources said the 3 million-barrel ultra-large crude carrier Europe has been repurposed to store crude oil, having been used to store LSFO for months near Singapore.

Alongside Oceania, the only other ULCC in the world, Europe arrived in waters off Singapore last year, bringing in millions on barrels of low sulfur material ahead of the implementation of IMO 2020 regulations.


Bunkerworld .,
16th April 2020 08:15 GMT