Asian fuel oil market activity gathers pace on re-stocking, utility demand
The Asian low sulfur fuel oil market is seeing heightened activity in January due to a double whammy of demand from the regional utility market and from sellers looking to re-stock after running down inventories in December in the lead-up to year end.
A surge in demand for low sulfur material from the utilities sector to meet peak winter season heating demand, especially from North Asian markets that have traditionally relied instead on cleaner burning fuels like LNG, has prompted LSFO suppliers to sit up and plan balances in January in a way they did not have to for most of last year when availability was ample.
“Last year we never worried about oil for the next month, but now we have to plan,” a Singapore-based LSFO trader at a western company said.
A resurgence in demand for LSFO as a burning fuel has also come at a time when both buyers and sellers are in the midst of looking to pile on product after de-stocking for the financial year end in December.
Current steady demand from the end-user low sulfur marine fuels market, especially from buyers that have inked contracts for January supply, if not so much from the spot market, has also bolstered market sentiment.
Further to North Asian markets like Japan and South Korea stepping up imports of low sulfur fuel oil to meet incremental domestic utility demand amid a cold snap, demand for high sulfur fuel oil as a burning fuel has remained firm from the Middle East and South Asia.
In Japan, some domestic refiners have been unable to increase fuel oil output at short notice to meet a surge in utility demand, S&P Global Platts reported Jan. 15 quoting Japanese refinery sources.
Chugoku Electric has resorted to importing fuel oil in addition to its domestic procurement, Platts reported, quoting a company official.
At least three South Korean utility companies have also been in the spot market to procure a cargo each of LSFO for delivery over January and February, traders said.
Taiwan’s CPC Corporation has maintained its purchase of at least 1 LSFO cargo per month to meet domestic utility demand, market sources said.
In the Middle East, Kuwait Petroleum Corp. has bought three 80,000 mt HSFO cargoes for January to meet utility demand, while its Mina Abdullah refinery, which normally supplies product to meet domestic demand, undergoes upgrade works.
Kuwait is likely to continue importing HSFO over February to meet its local power generation demand amid domestic refinery upgrades, Platts reported Jan. 7, quoting a company source.
Utility demand for fuel oil from other regional buyers like Sri Lanka and Bangladesh also remained steady, traders said.
“Clearly, there is more [fuel oil] going to meet utility demand, but there is also demand for bunkering…[South] Korea, China, Hong Kong, for example,” another Singapore-based fuel oil trader at a western company said.
Given the current demand-supply balances, market sentiment was generally optimistic.
A western arbitrage fuel oil volume of just over 2 million mt is expected to arrive in Singapore for January, down 500,000-600,000 mt from December, market sources said.
Incremental demand, both from the regional utility sector and the end-user marine fuels market, will likely hasten a drawdown in stocks in landed tanks and on floaters off Singapore, traders said.
Singapore’s commercial onshore residue stocks edged down 0.94% week on week to 22.304 million barrels, or 3.52 million mt, in the week to Jan. 13 amid a doubling of fuel oil exports, latest available data from Enterprise Singapore showed.
Reflecting the bullish sentiment, the benchmark Singapore marine fuel 0.5%S cargo market’s premium to the Mean of Platts Singapore marine fuel 0.5%S assessment hit a near 11-month high of $3.58/mt Jan. 15. The premium was last higher on Feb. 26 last year at $4.92/mt, Platts data showed.
Also underpinning the bullish sentiment was a strengthening of the market structure at the front of the Singapore marine fuel 0.5%S swaps curve, which touched a 49-week high of $3/mt Jan. 11 before ending the trading week at $2.80/mt on Jan. 15, Platts data showed.
“The market is more bullish. This year is different because we are working with lower inventory. This year we need bigger arbitrage [volumes],” the first fuel oil trader said.