Asian LSFO margins at record high on tight supply

Asian 0.5pc sulphur marine fuel margins yesterday rose to the highest levels since Argus started assessing it in March 2020, against persistent tight supply and continued utility demand.

The margins, or the premium or discount of front-month Singapore 0.5pc sulphur marine fuel swaps against Dubai crude values, rose to $15.41/bl on 29 December. This was the highest levels seen since Argus started assessing them on 13 March 2020.

Markets have been supported since early December, when prompt Singapore 0.5pc sulphur marine fuel prices firmed to $24.75/t against forward values on 2 December, also the widest spread since Argus began assessing it in November 2019. The strength occurred fromlean inflows to Singapore in December and some northeast Asian utility demand.

Low-sulphur arbitrage arrivals from the west of Suez and the Asia-Pacific to Singapore in January are estimated at 2.6mn-3mn t (541,000-624,200 b/d), according to traders and analysts. While this is higher than December's approximate 1.8mn-2mn t, it is similar to monthly average inflows to the city-state this year. But there could still be a lack of components for blending into on-specification low-sulphur fuel oil (LSFO), contributing to the continued strong margins.

Japan, a typical net fuel oil exporter, also imported 126,500t of LSFO in December, the highest monthly volumes since at least December 2018, according to Vortexa data. Power firms with oil-fired power generation plants started stocking up on fuel oil earlier, having experienced severe power shortages in the previous winter from December 2020 to January 2021.

Trading firms are also stepping up fuel oil imports to supply power utilities against high spot LNG prices, although LNG imports will still largely have to carry on as there are few oil-fired power generation plants left in Japan, said market participants.

Japan's meteorological agency also forecasts a near-normal to a 40pc probability of above-normal temperatures for central to northern Japan from 8-21 January, which could cap utility demand next month. Expected LSFO arrivals to Japan for January 2022 have also fallen to around just 16,900t so far, according to Vortexa data.

By Sarah Giam

Asian 0.5pc sulphur marine fuel margins ($/bl) (Usd/bl)