The Singapore 380cst High Sulphur Fuel Oil (HSFO) physical differential has risen to an 11-month high amid active buying interest by oil firms in the Singapore trading window.
The differential rose to US$14.106/MT on 3 February, a whopping 726.94% increase from -US$2.25/MT on 2 January. The spike has been largely driven by continuous days where trading houses Glencore and Trafigura and oil majors BP and PetroChina, placed competitive bids, pushing Singapore 3.5% 380cst HSFO values to a three-month high of US$412.70/MT on 30 January, a significant jump from US$337.55/MT in early January. Although both Trafigura and Glencore switched over to the sell side by end of January.
The unusual strength in Singapore 380cst HSFO was also reflected in its crack spread against Dubai, which jumped to a 7-month high within a month, with the magnitude of the spike indicating that HSFO prices were being driven by more than just strength in crude prices. The 380cst HSFO crack spread rose from -US$7.15/bbl in early January to -US$1.24/bbl on 3 February, marking a 476.61% increase in the spread.
Current market strength is difficult to justify through fundamentals alone. While shipments from Malaysia - typically a conduit for sanctioned Iranian and Venezuelan fuel oil - into Singapore, halted last month due to geopolitical tensions, total HSFO arrivals rose by 68,400t, according to data from oil analytics firm Vortexa. This growth was driven by a surge in Russian exports that more than offset the loss of Malaysian volumes that were curtailed by the US’s capture of Venezuelan president and rising US-Iran tensions following domestic protests in Iran.
Despite the Russian flows, simmering geopolitical tension in the Middle East and uncertainty over the situation with Venezuela, has raised the prospect of supply disruptions from two core fuel oil producers, turning market sentiments bullish. This is also reflected in the 380cst HSFO forward curve which has seen the front-month backwardation widen dramatically over the last month.
