Asia Hi5 spread at fresh all-time high as distillate tightness persits

4 Jul 2022

Quantum Commodity Intelligence - The spread between the price of Asian cargoes of high sulfur fuel oil and 0.5% marine fuel continued to widen at the start of the week, ballooning to a fresh all-time high as tightness in the distillates market continues to have knock-on effects for residual fuels.

The Asian Hi5 spread – the difference between cargoes of the two grades in Singapore – was up another $43.75/mt, sending it past an all-time high set last month to a fresh record of $486.50/mt.

It came as marine fuel 0.5% sulfur traded at the front end of the market at an $83/mt FOB Singapore premium to July paper to leave the cash differential at a $74.25/mt premium to nearby swaps.

That left the outright price up $22/mt at $1,006.50/mt, with the spot refining crack to Brent up $1.77/b at +$35.16/b, while 380 CST was down $21/mt from Friday at $520/mt.

Vessel owners that have fitted scrubbers into engine rooms continue to be rewarded, with the gulf between the grades continuing to widen as a cargo of the lower sulfur marine fuel now costs almost double the price of 380 CST.

The move comes as the supply fundamentals in both markets remain opposed, with the marine fuel 0.5% forward curve heavily backwardated and reflecting tight supply as persistently high distillate refining margins squeeze cutter stock supply.

High sulfur fuel oil, meanwhile, has a flat nearby forward structure as flows from Russia into Asia and the Middle East have picked up.

Even as middle distillate cracks have come off last week's record highs, with margins for refining diesel still well above that of 0.5%S fuel oil it is likely that refiners will continue to prioritise distillates over residuals.