NWE LSFO premium to HSFO widens on weak HSFO barges, despite low LSFO demand

The premium of Northwest European low sulfur fuel oil to high sulfur fuel oil has widened this week on the back of weaker HSFO fundamentals and in spite of muted demand for the lower sulfur grade.

The physical hi-lo — the premium of 1% FOB NWE cargoes to 3.5% FOB Rotterdam barges — rose to be assessed at $6/mt Tuesday, having been flat in the last week of 2014. It was last higher on December 18 at $6.75/mt, Platts data showed.

The wider hi-lo was mainly a function of a weaker HSFO market, with an abundance of material triggering a steeper contango structure, traders said.

FOB Rotterdam barge values have fallen recently and were assessed at a $7.75/mt discount to the front-month swap Tuesday.

“With this crude, refinery margins are really good,” one trader said, adding the market was marginally pressured by ongoing flows from Russia.

“We certainly see stocks building which probably also creates this steeper contango with most tanks full [with cracked material] already,” another source said.

Meanwhile, low sulfur fuel oil traders continued to report weak fundamentals after bunker players stopped buying product to comply with new regulations. That left Mediterranean utilities as the last outlet for LSFO cargoes.

January 1 marked the transition to new IMO rules which require ships traveling within 200 miles of shore in North America and Northwest Europe — known as Emission Control Areas — to use fuel with a maximum sulfur content of 0.1%, down from 1%.

Current LSFO market fundamentals were providing relative support to the 1% FOB NWE cargo market while not being sufficient to absorb the overhang.

“Cargoes are still going at steep discounts. The contango has helped to move some cargoes,” one trader said. “But not [enough to] clear the production coming through,” he said.
Source: www.platts.com