Singapore’s low-sulfur fuel oil imports from Western markets are set to decline for the fourth straight month in May, amid unfavorable arbitrage opportunities largely due to a sharp default, several Singapore-based traders told Platts, part of S&P Global Energy, during the week ending May 22.
The monthly decline in westerly flows is expected to continue into June, exacerbating pressure on on-spec LSFO availability in Singapore, the world’s largest bunkering hub, traders said.
Singapore is now expected to receive about 1.1-1.2 million metric tons of LSFO from the West in May, down from 1.4-1.5 million metric tons in April, according to traders. June replenishments are expected to tighten by around 400,000-500,000 MT, which will likely take June western arbitrage volumes to as high as 600,000-800,000 MT.
However, some traders expect the current market tightness to start to ease in July, when more shipments from Europe are expected to arrive in Singapore, but they added that it is still too early to determine the trend.
High LSFO freight premiums in Singapore have stimulated some Western merchandise flows in recent weeks, but the majority of traders remain reluctant to cut large volumes to avoid building inventories in a sharply lagging market, one trader said.
The West-East arbitrage window has remained mostly closed so far in May, although record freight rates have cooled over the past few weeks, according to some sources.
Platts assessed the first-month spread between Singapore’s 0.5%S marine fuel cargo and FOB Rotterdam 0.5%S barge valuations, or the east-west spread, at US$87.25 per metric ton on May 21, down US$13.75 per metric ton day over day. However, the spread has widened by about 60% so far in May, Platts data showed.
The scarcity of blending components and ultra-low sulfur materials, combined with persistent severe retardation, has led blenders to slow down their LSFO blending activities. “This leads to further shortages of specification supplies,” one trader said.
The ongoing US-Israeli war with Iran and the blockade in the Strait of Hormuz continue to disrupt the usual LSFO blending components from the Middle East, which would normally find their way into the LSFO blending complex, according to three traders.
“Sweet crudes were going to refineries as feed,” one trader said, while another trader added that some of the low-sulfur alternative stocks available in the region were difficult to blend due to their high mineral content and high pour points.
Traders said Singapore sulfur cutters were looking very tight, especially since some of the medium sulfur barrels coming into Singapore from Brazil could not be easily blended down to the 0.5% S grade specified on specifications.
Platts assesses Singapore marine fuel freight differential of 0.5%S over Platts’ average Singapore marine fuel assessment of 0.5%S at a premium of US$39.86/ton at the Asian close on May 21, down US$1.47/ton from the previous session. Platts data showed that the cash premium rose by 26.5% in the past two weeks.
Scarcity in the European LSFO market
The European LSFO arbitrage window for Singapore remained closed for most of May despite falling rates for dirty oil tanker freight, according to trade sources in northwest Europe.
Europe has seen a similar shortage of low-sulphur blending components, with many of these barrels being sold on the European feedstock market amid high demand at refineries.
This dynamic led to higher blending costs, resulting in tight supply in the VLSFO market during most of May, the sources said.
“The mixture ingredients go into the feed market… so the mixing process is expensive,” said one trader in northwest England.
While medium sulfur barrels have been plentiful, market participants see most of these volumes being sold into the European HSFO blending complex amid continued negative Hi-Lo paper spreads. Therefore, merchants saw better value in selling these quantities locally rather than sending them to the East.
Market participants have noticed a decline in VLSFO supply shortages in recent days, as mixing components become more available.
“The tightness problem between Amsterdam, Rotterdam and Antwerp is being resolved from a components perspective,” another source said.
source: Platts
