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HSFO dips but outlook remains supportive

Asia’s high-sulphur fuel oil (HSFO) market dipped on Friday, with cash premiums and front-month time spreads edging lower.

However, tight supplies and strength in the gas market continues to be supportive for utility-grade HSFO, industry sources said.

“Spot Asian LNG is trading at an oil equivalent of around $177 a barrel and so there is a clear incentive for gas-to-oil switching,” said ING Economics in a note on Friday.

“This switching is something that we are already seeing in the power generation sector, particularly in markets such as Pakistan and Bangladesh.”

Fuel oil inventories have trended lower in recent weeks, dragged lower by firm demand from utilities and refiners as well as limited output of the fuel. Weekly industry data showed residual fuel inventories fell across all three key storage and trading hubs in Amsterdam-Rotterdam-Antwerp (ARA), Singapore and Fujairah.

Fuel oil stocks in the ARA refining and storage fell by 5%, or 60,000 tonnes, to a two-week low of 1.16 million tonnes in the week ended Sept. 30, data from Dutch consultancy Insights Global (IG) showed.

Compared with last year, the inventories at the ARA hub were 14% lower and below the five-year seasonal average of 1.31 million tonnes.

In Singapore, fuel oil inventories dropped 13% to a more than two-year low 18.73 million barrels, or 2.95 million tonnes, despite a more than ninefold increase in weekly net import volumes.

In the Fujairah hub, fuel oil stockpiles were down 4% to a near three-year low of 6.72 million barrels, or 1.06 million tonnes, amid firm exports to Asia and steady bunkering demand. Freepoint bought two 20,000-tonne 0.5% very low-sulphur fuel oil (VLSFO) cargoes from Shell and Chevron. No high-sulphur fuel oil (HSFO) cargo trades were reported in the Singapore trading window.
Source: Reuters

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