Refining margins and spot premiums for both high-sulphur and low-sulphur fuel oils have dropped sharply across Asia. The slump was accelerated by heavy regional supply, including a surge in October exports from the UAE to Singapore and Malaysia. In the broader crude market, Brent touched a two-month low following U.S. midterm elections as investors anticipated accelerated peace efforts. Nevertheless, expensive tanker chartering rates are expected to restrict European cargo inflows and keep year-end replenishment tight.
Key points
Shippers and refiners are poised to benefit from reduced marine bunkering costs and cheap…: Shippers and refiners are poised to benefit from reduced marine bunkering costs and cheaper regional feedstocks.
Anticipation of Middle Eastern de-escalation is currently outpacing supply-side concerns…: Anticipation of Middle Eastern de-escalation is currently outpacing supply-side concerns in driving benchmark prices lower.
Elevated shipping freight rates from Europe are projected to curtail Asian import volumes…: Elevated shipping freight rates from Europe are projected to curtail Asian import volumes throughout November.
Sources checked by our analysis pipeline: 1
Softer residual fuel prices would ease the costs of refuelling for shippers and lower feedstock procurement costs for refineries.
Asian refiners' margins for 380-cst high-sulphur fuel oil (HSFO) slumped on Thursday, with the Dubai-basis crack closing at a discount of $2.29 a barrel versus a premium of $5.34 a barrel at the start of the week, based on LSEG data.
The crack was at its lowest since mid-September, extending declines after flipping into discounts in the previous session.
Regional supply has improved as higher exports from the UAE's Fujairah cap prices, said Emril Jamil, a senior oil research manager at shipping analytics firm Kpler.
UAE fuel oil exports bound for Singapore and Malaysia totalled about 729,000 metric tons in October, an eight-month high, Kpler data showed.
"The market is down on expectations that if a peace deal comes to fruition, more oil outflows from the Middle East will weigh on prices," Jamil said.
Cracks for 0.5% very low-sulphur fuel oil (VLSFO) also softened this week. Spot premiums for both Singapore HSFO and VLSFO have also weakened.
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