Heavy buying boosts Singapore 380 CST HSFO premiums, narrows viscosity for October

Heavy buying of 380 CST high sulfur fuel oil cargoes in Singapore in October has boosted cash premiums and narrowed the viscosity spread for the marine fuel for the month, with the high volume changing hands during the Platts Market on Close assessment process reflecting demand in the bunker fuel market.

Cash differentials for 380 CST HSFO had risen to a near 20-month high on October 4, when it was assessed at $9.44/mt to Mean of Platts Singapore 380 CST HSFO assessments. The premium was last higher on February 13, 2012, when it stood at $9.49/mt, Platts data showed.

Cash premiums in October for the grade averaged $6.40/mt, in sharp contrast to the discount of $2.40/mt averaged in September. Its crack level to cash Dubai crude averaged minus $10.20/barrel in October from minus $13.05/b the previous month.

The volume of 380 CST HSFO trades in the Platts MOC process in October had surpassed the 3-million-mt mark to hit 3.175 million mt -- the highest seen in recent years.

Eight trading firms were buyers during the Platts MOC process in October, with the bulk picked up by three trading companies: Glencore with a total of 1.375 million mt, PetroChina at 880,000 mt, and Mercuria at 580,000 mt.

The cargoes were sold by 15 trading firms, with Cargill being the top seller at 580,000 mt, followed by BP at 400,000 mt and Lukoil at 300,000 mt. Meanwhile, the viscosity spread between 180 CST and 380 CST HSFO in October narrowed, exacerbated by limited buying interest for 180 CST which saw just 100,000 mt traded during the Platts MOC process in October.

The 180 CST/380 CST spread narrowed to an all-time low of 3 cents/mt on October 4, since Platts started assessing 380 CST on January 2, 1998.

But for the whole of October, the viscosity spread averaged $4.19/mt, narrowing marginally from an average of $5.72/mt in September.

TIGHT ARBITRAGE SUPPLY, BUNKER DEMAND TO KEEP NOV SUPPORTED

The 380 CST HSFO market in October was largely supported by lower incoming arbitrage volumes, lower regional refinery runs and steady bunker fuel demand, with arbitrage supply and bunker demand expected to continue lending support in November.

Traders estimated Asia received 3.5 million-4 million mt of arbitrage cargoes from Europe and the US in October -- below the typical monthly volume of 4.5 million-5 million mt -- because of run cuts and turnarounds in Europe.

And arbitrage supply from the West of Suez markets are likely to stay under 4 million mt in November, as runs at European refineries are expected to remain relatively low even after returning from their turnarounds.

Adding to this, an abundance of high density, high viscosity material is seen among the arbitrage supplies, rather than 380 CST grade that can be fed directly into the bunker pool, amid concerns over cutterstock availability.

"The market has been slowly losing density... There is still a decent amount of USGC heavies coming this way," a Singapore-based fuel oil trader said, adding that using straight run fuel oil as a blending stock was not economically viable.

But not all traders saw a shortage in end-user grade fuel oil.

"There is less material [directly meeting end-user requirements] in new arbitrage arrivals, but I would not say there is a shortage of end-user grade material," another trader said, pointing to the large volume of trades done during the Platts MOC process.

As already, heavy distillate stocks have fallen to a three-month low of 19.177 million barrels as of October 30, data from government agency IE Singapore showed. They were last lower on July 17, at 18.916 million barrels.

Meanwhile, steady demand from Singapore's bunker fuel market is expected to continue to underpin the regional market.

Some traders believed that the majority of cargoes traded during the Platts MOC process is likely to be channeled into Singapore's bunker market, with some to head to South Korea and China.

South Korea's import demand may slip in November as refiners have started raising run rates to meet upcoming winter demand for power generation, displacing potential imports.

The country imported 2.582 million barrels of fuel oil in September, down 43.6% from August, data from state-owned Korea National Oil Corp. showed.

China's fuel oil imports in September, at 1.42 million mt, have risen from near five-year lows. But the month-on-month rise of 21.2% was from a low base of 1.17 million mt in August -- its lowest since October 2008 -- and September imports were 39.3% down year on year.

The country's 24 state-owned refineries plan to operate at an average 79% capacity in October, slightly up from 77% capacity at 23 refiners in September, a Platts survey showed.

Total crude processing across all refineries in September was at 38.65 million mt (9.44 million b/d), down 2.7% from August, data from the National Bureau of Statistics showed.
Source: Platts