Fuel summary: Margins slump as availability picks up, crude firms

22 Sep 2023

Quantum Commodity Intelligence – A rally in crude oil prices above the $95/b mark has weighed on residual fuel margins through the week, with the recent rally looking to have run its course as higher supplies and slowing demand boosted stock levels around the world.

The rally in crude prices was the main story for fuel oil margins through the week, with the strength eating into refining margins that are now in freefall for HSFO and are barely keeping their head above water in VLSFO markets.

That was helped by a rise in overall availability of fuel oil in the physical market in recent weeks, with the end of the summer in the Middle East lifting supply on the international market.

The addition of a surprise export ban on gasoline and diesel from Russia is making matters even more complex, with trade flows set to be upset and likely to have a knock-on effect on residual fuel markets.

While the structure and length of the export ban are yet to be fully confirmed, Asian markets that have enjoyed rising fuel oil supply from Russia of late may find themselves at the mercy of run rate cuts.


Asian 380 CST refining margins slumped through the week as the month-ahead touched lows of a discount of more than $14/mt to Brent crude at one stage through the week as residual fuels struggled to keep up with a rally in crude markets.

Calendar spreads have also been under pressure as the last of the summer’s rally was squeezed out of the system, with the M1/M2 intermonth closing the week at about $5.50/b – its lowest since late June.

It comes as supply has been on the rise, with Russian barrels continued to make their way to Asia and appear so far unaffected by the export ban announcement.

On the demand side, the seasonal slowdown of domestic consumption in the Middle East has run its course for the year. Reflecting that, KPC was offering a rarely seen 60kt parcel of HSFO for the end of the month out of Kuwait.

Weakness in Asia saw the east-west spread collapse at the start of the week, with European barges trading at a premium of over $40/mt at some stages.

By the end of the week, however, weakness in Europe had also showed signs of picking up to add to hints of the summer rally having run its course.


Similarly for the marine fuel market, an uptick in availability weighed on prices through the week.

In Singapore, the October crack traded at a discount to Brent futures midweek and was a skinny $0.59/b on Friday evening.

Calendar spreads have proven a little more resilient than cracks as backwardation widened slightly at the front of the curve through the week, although it was starting from a low base.

While the wider availability of VLSFO parcels in the market weighing on prices, the crude import slate in Singapore is expected to have an impact and lower availability in the coming months.

With WTI import arbitrage into Asia closing of late, expectations are for a reduction of as much as 60kbpd through the month – a trend that may lift fuel margins off the rock bottom levels seen this week.

“We expect these flows to remain pressured in the months ahead as there is planned maintenance at fields producing WTI grades from October to November. The decrease in sweet crude imports into Singapore will in turn weigh on straight-run VLSFO production at the margin,” analysts FGE said in a client note.

European prices were a touch lower through the week, while cracks showed similar weakness to Asia as the month-ahead slipped below a five-month low at a $6/b discount to firm Brent futures midweek.


Stocks in Singapore enjoyed the effects of rising availability and a slowdown in demand from the Middle East, with stocks up 1.1 million barrels on the week to a three-week high of 21.9 million barrels.

Similarly, stocks in Fujairah spiked 1.1 million barrels to a three-month high of 10.2 million barrels.

US stocks were up 1.6 million barrels at a one-month high of 28.8 million barrels. In Japan, inventories were steady through the week at 18 million barrels and remain some 15% higher than they were a year ago.

Of all the major storage centres, only European stocks were down through the week as inventories fell 6% to 6.5 million barrels and left stocks down 2% from the same stage last year.

Bunker sales data was upbeat in Fujairah, with figures from showing a year-to-date high for demand at 663,700 cubic metres as marine fuel sales hit a record high.

Low sulfur fuel sales were up 37% on the month at 174,000 cubic metres, while HSFO volumes were up 2% at 459,600 cubic metres.

Data from Singapore showed a 6% pullback from July’s highs to 4.3 million mt, although volumes were still just above the average seen through the rest of the year. The month’s sales included 2.5 million mt of LSFO sales and 1.4 million of marine fuel.

And in China, exports of over 1.55 million mt of marine were seen last month, equivalent to 50,000 bpd as demand was up 1% month-on-month.