Singapore scrubber spread dips on weaker bunker demand

The scrubber or Hi-5 spread, or the price difference between very-low sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO), in Singapore reached $154.04/t on 22 February, a 10-month low.

The scrubber spread has gradually fallen since peaking at almost $600/t in July last year, in a reversal of fortune for vessels operating a scrubber. Recessionary fears have dampened demand for bunkers across all grades, which typically narrows the quality spread, but HSFO prices have held up better than VLSFO.

Argus assessed the average premium of VLSFO bunkers over the cargo price in 2022 at $43.34/t, which has fallen to an average of $15.91/t so far in February. The premium of HSFO bunkers over the cargo price averaged $24.75/t in 2022 and has averaged $15.75/t so far in February.

Margins for 180cst HSFO against Dubai crude values in Singapore have been firming since November last year, reaching about six-month highs of -$13.52/bl on 22 February. Margins were last higher at -$12.73/bl on 15 August last year. But Singapore 0.5pc sulphur marine fuel margins fell to over two-year lows in mid-December 2022 and were at over one-month lows of $7.22/bl on 22 February.

"Despite lots of discounted residual Russian barrels in the region, most trading houses here cannot touch them due to self-sanctioning", said a Singapore trader. This has led to a two-tier pricing market for the product since western sanctions on Russia came into effect.

"The strength in HSFO is also due to more scrubbers out there because of the high spread last year, boosting demand", said another trader.

Market participants were initially expecting HSFO prices to be depressed because of more Russian inflows, mostly of the high-sulphur grade diverted to Asia-Pacific after EU sanctions on Russian oil product imports. But some returning south Asian utility demand, particularly from Bangladesh, could have supported markets, they said. Fuel oil arrivals to Bangladesh in February are projected to be around three-month highs of 194,500t (1.25mn bl), according to Vortexa data.

But northeast Asia is also likely not taking much VLSFO to meet utility demand, with ample LNG inventories and LNG prices having come off since September 2022. LNG stocks at Japan's main utilities are also high at 2.63mn t, according to its trade and industry ministry's weekly survey, up by 56pc compared with stocks at the end of February 2022.

The influx of VLSFO cargoes from Kuwait's new 615,000 b/d al-Zour refinery is also likely weakening VLSFO markets. Kuwait's state-owned KPC has sold a total of 1.14mn t of VLSFO for loading over November 2022-April 2023, some of which have headed to Singapore. It is offering 360,000-450,000t more of VLSFO for loading over March-May.

Lean inflows

Low-sulphur residual inflows to Singapore from Europe were lean this month as European refiners upgraded more low-sulphur feedstocks into gasoline, with low-sulphur fuel oil inflows to Singapore in March still projected by traders to be around average volumes of 2mn t. The incremental inflows from Kuwait, along with weaker LSFO bunker demand, could have depressed markets as well.

But how long the spread will stay narrow for remains to be seen, as more HSFO is expected to arrive in Singapore by mid-March, said traders.

Sammy Six and Sarah Giam