The Singapore fuel oil complex has staged one of its sharpest two-week rallies in recent memory, with both the high and low-Sulphur fuel oil cracks touching levels last seen on 9th March. Both moves are being driven by tighter supplies as blend stocks are redirected and exports from Russia are curtailed.
Singapore 380cst high-Sulphur fuel oil (HSFO) crack vs Dubai crude traded in a tight -$1 to -$5/bbl band through most of April before rallying decisively this week and settled at +$12.72/bbl on 6 May. Meanwhile, Singapore 0.5% very-low-Sulphur fuel oil (VLSFO) crack against Dubai crude has seen an even more volatile move, jumping from a +$4.12/bbl 17 April to +$23.85/bbl on 6 May, a whopping 479% increase within three weeks. Both HSFO and VLSFO cracks against Dubai are well above their seasonal average for the past six years.
Singapore VLSFO supply was hit hard as exports from key suppliers such as Kuwait’s KPC and Nigeria’s Dangote fell between March and April, with arrivals of 442,700 MT compared to 766,900 MT during the same period last year. To make matters worse, strong middle distillate cracks, due to the conflict in the Middle East which has chocked exports through the Strait of Hormuz, have incentivized refiners to feed low-Sulfur blend stock into secondary units to increase middle distillate production.
March bunker demand for VLSFO saw little change from February, according to the latest data from Singapore’s Maritime and Port Authority (MPA). But May bunker demand could be dented by recent contamination cases originating from Estonian blend component with high levels of alkylresorcinols and Phenols.
In the HSFO market, a sharp drop in Russian exports has also contributed to cracks rallying to double-digit territory. Russian supplies averaged at 1mn MT have made up more than half of total HSFO arrivals into Singapore since March. About 800,000 MT of HSFO cargoes in transit from Russia to Singapore were lost in April following Ukraine’s drone attacks on Russia’s refinery and export infrastructure. Russian HSFO stocks onboard Floating storage units (FSU), which usually serve as supply buffers, have also come down dramatically by 379,800 MT to only 97,000 MT, analytics firm Vortexa data shows.
Recent activity on the east of Suez fuel oil trading window has seen BP actively buying 380cst HSFO cargoes, snapping up a total of 280,000MT in four trading days for May and June loading, while simultaneously buying the May/June spread. The activity has also contributed to higher physical premia, feeding into stronger crack spreads.
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