Fuel summary: Marine fuel premiums over crude hit new record on tight diesel

24 Jun 2022

Quantum Commodity Intelligence – The price of marine fuel oil 0.5% loaded out of Singapore versus crude hit a record high this week as soaring diesel costs has hauled up the price of gasoil, a product that is used to blend sulfur down in finished-spec bunker fuel.

The price of marine fuel has fallen nearly $50/mt since last Friday, with cargoes loading in the next 10-25 days assessed by Quantum at $963.50/mt at 1630 Singapore time.

Yet while flat prices have fallen, the premium over crude – the crackspread – has soared above $30/b for the first time, rising $5/b in the past week.

One of the drivers is higher diesel costs, with benchmark 10ppm sulfur cracks surging past $70/b this week on the back of deteriorating supply and rising demand.

That in turn has hauled up gasoil 0.25% prices, leaving the premium of 0.25% over marine fuel oil at $300/mt this week, double on where the spread was a month earlier.

The spread is a guide to the cutterstock cost as fuel suppliers buy in high-sulfur residual fuel and blend it down with gasoil to produce either bunker-grade quality fuel, or to a lesser extent for power station feedstock, 

The other driver is that prices are rising to try and suck in arbitrage volume from the west and higher prices have widened the arb, with the east-west – July marine fuel oil swaps in Singapore minus marine fuel oil barges in Europe – rising $13/mt on the week to $96/mt.

The market remains tight for fuel oil in Asia, with the backwardation in the M1/M2 swaps market increasing from about $40/mt last week to $60/mt on Friday and the cash differential at a record high of $76/mt above swaps.

Premiums

The high prices for fuel oil isn’t just limited to Singapore, Fujairah delivered bunker premiums rose to more than $110/mt above Singapore cargoes, a level that has never been seen even at the introduction of 0.5% limits.

Again, the issue in Fujairah continues to be access to molecules to blend away sulfur, although there are regional supply issues.

The rise in prices comes despite the increase in Chinese exports of VLSFO, 15% in May to 1.4 million mt after reaching a near two-year low a month earlier when strict Covid lockdowns hampered trade.

Cumulative exports are down only 5% on the first five months of the previous year.
The rise also comes despite a hike of almost 3 million barrels in fuel stocks in Fujairah and Singapore.

As refining margins for VLSFO climbed in Europe, so did HSFO with cargoes of 380cst falling $65/mt on the week to be assessed at $562.25/mt.

That saw the residual discount to crude climb from -$23/mt to -$19/mt over the same period.

With backwardation between M1 and M2 rising only marginally, the market remains flat versus a declining crude complex – indicating relatively weak demand.

Higher Asian prices widened the east-west from $6/mt to $12/mt, still a fraction of the shipping costs.