Asian HSFO flips into contango on lack of summer demand

Singapore 180cst high-sulphur fuel oil (HSFO) markets have flipped into contango mainly as typical South Asian summer utility demand has failed to materialise, market participants said.

The front-forward month timespread flipped from a $0.25/t backwardation on 6 June to a contango of -$1/t on 7 June and remained there on 8 June, according to Argus' assessments. This was the first time in over three months that markets were in contango, having last been there at -$1.25/t on 14 February. The current contango is slightly deeper than the -$0.65/t average in June 2022 compared to the $0.15/t backwardation in June 2021.

Singapore 180cst HSFO margins also weakened to -$9.66/bl against Dubai crude values on 8 June, much lower than averages between -$2.67/bl to -$5.99/bl during the second quarters of 2019-2022.

180cst HSFO markets weakened because of a lack of usual demand from major buyers Pakistan and Bangladesh to meet cooling needs in summer, owing to availability of alternative fuel LNG as well as financing issues, traders said. Fuel oil demand for industrial needs in Pakistan has also fallen as a result of an economic slowdown and inflation-related issues, a source close to Pakistan's state-owned marketer PSO said. PSO has not bought fuel oil since October 2022.

Just 43,200t of HSFO is projected to arrive in Bangladesh in June so far, and zero in Pakistan and Sri Lanka, the lowest monthly arrivals on record to those countries since at least June 2020, according to data from oil analytics firm Vortexa.

Pakistan has also offered rare fuel oil cargoes from its 100,000 b/d Pak-Arab refinery (Parco) and Pakistan Refinery (PRL) since late last year, because of high domestic inventories — and some volumes have arrived in Singapore, according to Vortexa data, likely adding to weakness in markets.

Pakistan and Bangladesh are also not importing much LNG for summer as they have sufficient domestic gas supplies, market participants said. Credit issues have also deterred Pakistan from importing LNG.

LNG market participants are waiting to see if Bangladesh's state-controlled Rupantarita Prakritik Gas (RPGCL) will award its latest tenders issued this week seeking two cargoes for delivery over 10-11 July and 23-24 July. The tenders will close on 11 June.

While LNG prices have fallen significantly — with the Argus-assessed price for deliveries to India and the Middle East for first-half July being at over two-year lows of $8.385/mn Btu on 8 June — the two south Asian countries could be counting on the potential for prices to ease further before firming up their summer demand.

By Sarah Giam and Subethira Ahrumugam