Fuel summary: Asia crack dragged back up by distillate rally
Quantum Commodity Intelligence - Asian marine fuel prices rose to a two-month high over the week, bolstered by bullish moves in the crude market and a rise in distillate margins as strikes in France drew diesel barrels west.
In the 0.5%S market in Singapore, cargoes jumped to a five-week high to $715.78/mt FOB Straits as the OPEC+ decision to lower output out to the year-end supported prices and left Brent at a one-month high.
While that move fed into wider products market bullishness, the crude rally does not tell the whole story, however, as Asian marine fuel cargo cracks spiked to a two-month high of +$9.91/b midweek.
That came as both Asian and European diesel cracks jumped, with chronic European supply tightness exacerbated by French refinery strikes.
The wider implication has meant the week's trend echoed moves seen over the summer as tight diesel supply spilt into the residuals market, with high distillate margins leading to a shortage of blend stocks and limiting refiners' appetite to produce low sulfur fuel oils.
Stocks data should have leant to the bearish side, with inventory moves largely higher over the week as Singapore stocks were up 3% to 22.9 million barrels, US up 4% at 28.7 million barrels, Fujairah up 2% at 12.6 million barrels, and ARA up 8% to 7 million barrels.
But there was more support for the upwards move from the demand side of the market, with expectations of tighter regional supply driving nearby dealing.
"Asian low sulphur fuel oil market structure has strengthened via firmer buying interest for physical cargoes amid expectations of tighter supply in the near term," brokerage FIS told clients in a note Friday.
Quantum data shows that front month spread widening, with the Oct/Nov widening to as much as $42.25/mt on Thursday – up from $9.43/mt at the start of October and $7.50/mt at the start of September.
Cash and swaps markets were less well traded through the week than usual in Asia, with Chinese holidays keeping some players out of the market, although the physical differential was still bid up $5.50/mt to $21/mt FOB Straits.
And while Asian cracks, calendar spreads, and cash were on the rise, the same could not be said for the European market.
Marine fuel barge cracks continued to fall further into negative territory through the week – dropping to a low of -$4.52/b midweek. The Oct/Nov spread was almost flat.
That came as regional supply has picked up, with stocks rebuilding for the first time in three weeks.
"On the physical side, NWE fuel oil markets have been well supplied by cargoes coming in from Saudi and Mexico," FIS wrote.
Those moves left the spot east-west spread at a two-month high of $78.08/mt midweek.
High sulfur fuel oil markets also saw some bullishness through the week.
In Asia, moves in the wider high sulfur market were limited by a general lack of market participation as much of China remained out of the office.
Nonetheless, paper trade was brisk in the second half of the week and there were still some cash deals booked to lift the 380 CST differential back into positive territory for the first time since early last month – closing at a slim premium to swaps, up from a discount of nearly $4/mt a week ago.
That left the 380 CST cargo price in Asia up 7% over the week at a three-week high of $386.41/mt FOB Straits.
A similar trend was seen in Europe, where cargoes were also up 7% to $405/mt. That left the HSFO east-west spread up $12.75/mt at a three-week high of -$11.25/mt.