Analysis: Singapore bunker premiums lag HSFO cargo strength amid aggressive selling
Despite recent tightness in the high sulfur fuel oil cargo market, which supported cash differentials, the Singapore bunker fuel premiums, both ex-wharf and on a delivered basis, lagged behind amid fierce competition among sellers, industry sources said this week.
Singapore 380 CST ex-wharf bunker premium to the Mean of Platts Singapore 380 CST HSFO assessment hovered around $0.07-$2.49/mt over June 1-12, while Singapore 380 CST HSFO cash differentials were assessed at $1.95-3.18/mt over the same period, S&P Global Platts data showed.
The 380 CST HSFO cash differential was assessed at $1.95/mt Tuesday, while the Singapore 380 CST ex-wharf bunker premium was assessed at $2.06/mt, a spread of 11 cents. Usually, the spread is around $2-3. The differential between ex-wharf 380 CST bunker premium and HSFO cargo averaged $2.04/mt in 2017, according to Platts data.
Sellers would have to sell ex-wharf bunker fuel above the cargo premiums to make any money, a trader said. As bunker premiums are lower or relatively flat to the cargo premiums, they were not making money, he added.
Industry sources said that bunker prices are slow to follow cargo prices due to competition among the sellers. “Delivered bunker is still getting sold very cheap,” another trader said, adding that some sellers were offering bunker fuel cargoes at low prices to obtain more market share.
BUNKER DEMAND STEADY, PREMIUMS REMAIN CAPPED
“Bunker demand in this month is okay … but buyers are not ready to pay higher premiums unlike for cargoes,” a bunker fuel trader said.
Other industry sources highlighted that for ex-wharf premiums to be supported, delivered premiums had to be higher, and aggressive selling interest had dampened sentiment in recent weeks, sources added. Going forward, bunker fuel resellers might face challenges as more dominant sellers can provide volumes at better prices.
“If you are talking about resellers like us, there is definitely less trading volume or liquidity compared with the last couple of years,” he said.
Supply of HSFO in Singapore tightened in June because of lower inflow of arbitrage cargoes. Singapore typically receives 5 million-6 million mt of fuel oil from Europe and the US, and 1.5 million-2 million mt from the Middle East.
In June, however, Singapore was expected to receive only 3 million-4 million mt from Europe and the US, and around 1 million mt from the Middle East, traders said.
Fuel oil traders attributed the decline in inflow to strong demand from the Middle East, which was seeing more fuel oil imports, reducing supply to Singapore. The supply tightness is likely to continue until July, traders said.
“Even though cargo supply seems tight for HSFO right now, it doesn’t reflect in the bunker market,” a bunker fuel trader said, adding that there has been a disconnect between fuel oil cargo and bunker fuel markets for some time.