Asia Fuel Oil Lingers at Four-Year Lows Amid Rising Supplies

Fuel oil cargo prices in Singapore are struggling to rise above four-year lows as weak demand and refinery outages helped extend a supply glut.

Both Singapore 0.5% Marine Fuel Oil and 380CST High Sulphur Fuel Oil (HSFO) have been hovering at four-year lows since 26 November and were assessed at $418.21/mt and $334.61/mt on Thursday, the lowest levels since January 2021. Both 0.5% Marine Fuel and HSFO prices have slipped by 22.66% and 25.67% year to date.  

Oversupply Meets Weak Bunkering Demand

On the low-sulphur market, the market continues to absorb an influx of feedstocks such as and Pertamina’s V-1250 low-sulphur waxy residue (LSWR) and low-sulphur straight run (LSSR) from Nigeria’s Dangote refinery. The refinery has struggled with its residual fluid catalytic cracker (RFCC) keeping the low sulphur feedstock market well-supplied.

The high-sulphur market is facing a similar burden. Heavier feedstocks, including atmospheric residue, remain abundant, at a time when residue fuel inventories in Singapore rose 3.44% week-on-week to 25.56mn bl (4.03mn/t), according to Enterprise Singapore. Maintenance at Petronas’s RAPID refinery’s crude distillation unit (CDU) and Residue Fluid Catalytic Cracking (RFCC) units since mid-October have also resulted in additional availability of heavy feedstocks. But with the 300 kb/d CDU is now operational, and the 70 kb/d RFCC expected to come online early December, some of the supply overhang should clear.

Weak bunker demand in Singapore has also contributed to the lower prices. A spike in demand for vessels to store liquids fuels and congestion at Chinese ports has underpinned the weakness in bunker demand, market sources said.  

An important change in the fuel oil forward price structure is likely to underpin rising interest in storing fuel oil on ships, with the price structure switching from backwardation to contango over the last two months. A contango price structure – where near-term prices are lower than prices in the future – incentivizes the storage fuel oil. The price structure is intact until May, according to the current forward curve (see graphs) and could extend further into next year if the current oversupply worsens.

Congestion at Chinese ports is reported to have worsened this month, despite Beijing issuing the first batch of crude import quotas for next year, amounting to around 8mn tons. Worsening delays could be related to reluctance by some Chinese ports to offload Russian and Iranian crude and fuel oil amid the threat of further US sanctions. The more ships remain idled outside of port limits, the less bunker fuel they will burn.