VLSFO firms as supply outlook tightens
Asia’s 0.5% very low-sulphur fuel oil (VLSFO) firmed on Friday, pulling away from multi-month lows earlier in the week on concerns of a tightening supply outlook.
Elevated middle distillate refining margins and rising demand for residual fuels amid soaring gas and coal prices are expected to tighten output of fuel oil over the near term, trade sources said.
The front-month VLSFO crack extended gains even as crude prices rose, climbing to a two-week high of $12.13 a barrel above Dubai crude, up from a more than four-month low of $10.56 on Tuesday, Refinitiv Eikon data showed.
Rising natural gas and thermal coal prices are likely to see increased gas-to-oil switching, supporting demand for residual fuel oil and gasoil, ANZ Research said in a note on Friday.
ANZ analysts raised their fourth-quarter 2021 crude oil demand forecast by 450,000 barrels per day amid rising gas-to-oil switching in the power generation and industrial sectors and a continued recovery in demand for transportation fuels.
Meanwhile, residual fuel inventories at the Amsterdam-Rotterdam-Antwerp (ARA) storage hub dropped 10% to a 10-week high this week, while those in the Singapore and Fujairah hubs jumped, official data showed.
Fuel oil stocks in the ARA refining and storage fell by 119,000 tonnes to 1.04 million tonnes in the week ended Oct. 7, data from Dutch consultancy Insights Global (IG) showed.
Compared with last year, the inventories at the ARA hub were 22% lower and below the five-year seasonal average of 1.24 million tonnes.
In the Fujairah hub, fuel oil stockpiles were 22% higher to a one-month high of 8.18 million barrels, or 1.29 million tonnes, amid lower exports.
In Singapore, fuel oil inventories rose 11% from a more than two-year low in the previous week to a two-week high of 20.79 million barrels, or 3.27 million tonnes, despite low net import volumes. No VLSFO or high-sulphur fuel oil (HSFO) cargo trades were reported in the Singapore trading window.
Kuwait’s KPC sold an unusual cargo of up to 80,000 tonnes of residual fuel including coker gasoil and hydrocracked gasoil, also known as unconverted oil, loading over Oct. 20-21 to Vitol at an unknown price level.