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Asia low-sulphur fuel oil premiums plunge on rising supplies

Saturday, 06 August 2022 | 00:00

Cash premiums and refiners’ margins for very-low sulphur fuel oil (VLSFO) in Asia have tumbled from records reached last month as Asian refiners boost exports of the oil products used to blend the ship fuel, traders and analysts said.

The rise in supplies is expected to further suppress spot cash premiums for VLSFO and its refining margin, they said, weighing on overall profitability of Asian refiners and making marine fuel more affordable for ships.

The cash premium for VLSFO MFO05-SIN-DIF was $25.37 a barrel on Wednesday, down more than 70% from an all-time high of $86.23 reached on July 14, Refinitiv data showed. The product’s crack spread LFO05SGDUBCMc1, or the margin a refiner gains producing VLSFO, slipped to 15-month lows of $9.71 a barrel on Wednesday as well.

Bunker fuel premiums for VLSFO have also declined to around $50-$55 per tonne over Singapore quotes this week, versus record highs of above $100 seen in June, according to several bunker traders that participate in the market.

Falling global gasoline prices in recent weeks has prompted refiners to cut motor fuel output. This has allowed them to switch to producing more VLSFO and its blending components for export.

“The larger fall in gasoline cracks compared to VLSFO in July made the economics more favourable to send low-sulphur residue to the VLSFO blending pool instead of the RFCC (residue fluidized catalytic cracking),” said Ivan Mathews, head of FGE’s Asia Refining and Global Fuel Oil Service.

Indonesia’s Pertamina has offered three 200,000-barrel cargoes of decant oil for loading out of its Cilacap refinery and one 200,000-barrel cargo of vacuum residue, which is typically further processed into higher value middle distillate fuels, for loading out of its Balikpapan plant this month, according to shipbroking reports.

South Korea’s S-Oil had also offered vacuum residue, slurry, and light cycle oil for August loading.

In India, Nayara Energy is offering low-sulfur fuel oil (LSFO) for July and August after last offering cargoes via tenders in September and October of 2021, based on records compiled by Reuters. FUEL/TENDA

The increase in LSFO blendstocks is expected to keep VLSFO cracks pressured in August and September, though lower incoming supply from the West could cap declines, Mathews added.

“We are likely to see ample supply from (the second-half of) August as regional refiners ramp up output of LSFO blend components on easing diesel and gasoline cracks, heavier flows to East of Suez,” said Emril Jamil, a senior fuel oil analyst for Asia at Refinitiv.

Fuel oil arrivals to Asia are also expected to edge higher month-on-month in August as more Russian barrels find their way to the East of Suez, he added.
Source: Reuters (Reporting by Jeslyn Lerh; Editing by Florence Tan and Christian Schmollinger)

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