Australian heavy crude premiums ease

Heavy sweet Asia-Pacific crudes remain in demand for use in fuel oil blending, although reduced vessel movements because of the impact of Covid-19 has pulled premiums down from record highs at the start of the year.

Australian heavy sweet Pyrenees for November loading traded last week at a premium of $5.10-5.20/bl to North Sea Dated, its lowest premium in 19 months. Pyrenees' premiums surged to a record high of $30.50/bl to Dated in January for March-loading volumes. Australian heavy sweet Van Gogh is currently valued around a $7.55/bl premium to Dated, after the grade traded at premiums as high at $27.80/bl in January. But no trades have been done recently for the grade as the Van Gogh Ningaloo Vision floating production, storage and offloading vessel (FPSO) has been in Singapore since April for maintenance. The FPSO may not return to Australia until early next year, according to some traders, as Covid-19 travel restrictions have made it more difficult to move personnel to Singapore to bring the FPSO back.

The values of these low-sulphur, high-density Australian crudes, as well as South Sudan Dar Blend, firmed in late 2019 and early 2020 because they were blended directly into bunker fuel to meet the International Maritime Organisation's tighter sulphur limits for marine fuels implemented in January 2020.

South Sudan's Dar Blend rose to a record high premium of $6.20/bl to Dated in January but is currently around a $1.25/bl discount to Dated. Dar Blend did not strengthen as much as Pyrenees and Van Gogh. Although the crude is sometimes used for fuel oil blending, it has a much lower flash point — the temperature at which fuel vapour ignites — compared with the Australian grades, limiting its suitability.

Flash point is key to the suitability of crudes for use in fuel oil blending. Australian heavy sweet Vincent firmed to a premium of $8.15/bl to Dated in late July from a $1/bl discount to Dated at the end of April, after producer Woodside boosted the grade's flash point to around 100°C , allowing it to be used for fuel oil blending.

But overall softer demand from fuel oil blenders has recently weighed on premiums of these heavy sweet crudes. Fuel oil stocks in Asia-Pacific have generally been higher this year compared with late last year, partly because of reduced global oil demand as the impact of Covid-19 has curbed shipping movements. Production cuts by Opec+ this year have also reduced to some extent the export movements of crude from producing regions.

Bunker fuel sales in Singapore in August did rise to a five-month high, although it is unclear if this is sustainable, given increased demand concerns from the continued Covid-19 outbreaks worldwide. The rise in overall bunker sales in August was driven by an increase in high-sulphur fuel oil because of the shrinking number of ports providing the grade, but this growth may prove limited as scrubber installations have slowed recently. Sales of low-sulphur fuel oil (LSFO) in Singapore in August also fell by about 2pc from July to 2.84mn t, accounting for 69.6pc of total bunker sales. The higher viscosity LSFO 380cst grade accounted for the bulk of sales at 2.23mn t.

Despite the weakening in the premiums for these heavy sweet crudes, they still fared better compared with some of the light sweet, middle distillates-rich Asia-Pacific crudes. Their spot differentials slumped this year with a collapse in Singapore jet fuel refining margins. Malaysian light sweet Labuan fell to a discount of $4/bl to Dated in April, its deepest discount since at least March 2009, with the grade currently valued around a 20¢/bl premium to Dated for November-loading volumes.

By Rhalain Reyes