Asia, ARA fuel oil stocks fall, cracks tumble in run-up to IMO 2020
The impending to change to lighter sulfur bunker fuel in 2020 has had a wide ranging impact on related markets as fuel oil stocks are driven lower in Asia and Europe, regional premiums get blown out in Asia, and fuel oil cracks suffer.
Because demand for HSFO is expected to fade as 2020 approaches, there is an incentive to run down inventories before prices potentially tank with demand.
Singapore residual fuel stocks fell by 9.93% week on week to 19.74 million barrels over August 8-12 due to fewer imports from the West, Enterprise Singapore data showed Thursday.
Singapore imported just 958,953 mt of fuel oil over August 8-12, down 33.78% from the week before when it was 1.45 million mt, the data showed.
Total August month-to-date imports were 2.41 million, the data showed, in line with trader’s expectations.
This is well-below the 4 million mt/month of arbitraged cargoes Singapore sourced from the West prior to July.
And despite fewer arbitrage barrels heading East, Amsterdam-Rotterdam-Antwerp stocks dropped 11% to 1.056 million mt in the week to Wednesday, Insights Global data showed.
Further, fuel oil cracks in Asia and Europe have tumbled, decreasing refiners’ incentives to replenish inventories.
The 3.5% FOB Rotterdam barge crack was trading at minus $16.05/b Friday afternoon, down significantly from minus $6.455/b on July 31, according to S&P Global Platts data.
Similarly in Asia the Singapore fuel oil crack dropped to minus $10.41/b Friday, out from $3.26/b at the end of July.
ASIA BUNKER PREMIUMS SOAR
While Singapore may be sending a clear signal that European resid is no longer needed, other Asian end users are feeling the pinch.
With North Asian buyers likewise wary to restock high sulfur fuels, end-user demand has persisted, resulting in soaring bunker premiums for China and South Korea.
The Hong Kong delivered 380 CST bunker premiums over MOPS 380 CST HSFO averaged $91.82/mt in August so far, compared with $56.05/mt in July, and the Shanghai delivered 380 CST bunker premiums over MOPS 380 CST HSFO hit fresh highs of $144.08/mt on Tuesday.
South Korean prices have also climbed as stocks have run down and refiners gear up to produce lower sulfur fuels from October.
With less than four months before the IMO 2020 deadline, one of the South Korean refiners has limited its HSFO inventory to nearly zero, a Seoul-based bunker trader said.
“We are producing less HSFO from October, probably just small quantities until we can begin our [marine fuel] 0.5% production in Q2 ,” a source with a South Korean refiner said this week.
In Japan, however, refiners continued to run hard to produce gasoline for the summer driving season, and fuel oil stocks remain high due to a storm induced reduction in demand
“It’s the driving season [now] and fuel oil supply is very heavy … many suppliers have been very eager to sell HSFO,” a Tokyo-based trader said.
In addition, excess bunker fuel stocks from the recent cancellation of spot orders due to Typhoon Krosa has made suppliers rather keen to sell the product, traders added.
“The number of vessels calling [at Japanese ports] is lower than usual, so demand for bunkers has fallen accordingly too,” the Tokyo-based trader said Thursday.
This has blown out the delivered 380 CST bunker fuel price spread between South Korea and Japan.
The South Korea versus Japan delivered 380 CST bunker spread rose $6/mt day on day to $81.75/mt Thursday — the widest on record, S&P Global Platts data showed.