In high sulphur fuel oil (HSFO), we saw the Sep’24 NWE 3.5% barge crack plummet at the start of August, from where it traded within the range of -$10.15/bbl and -$9.85/bbl, supported by lower crude. However, while the Sep/Oct’24 3.5% barge spread also fell to $7/mt on 02 Aug, it sharply rallied to $8.50/mt on 07 Aug.
Fundamentally, European fuel oil continues to see healthy supplies despite good demand, keeping a lid on rallies. However, the spread between the US Gulf Coast and European HSFO markets appears to be narrowing, which may make this arbitrage less attractive and cause possible tightness.
Asian HSFO weakened at the start of the week amid underwhelming physical pricing. However, an influx of cargo buying and outright spread buying took the Sep/Oct’24 380 spread to a zenith of $12.50/mt between 05-07 Aug. This rally came from aggressive 380 spread buying in 2024 tenors from Singaporean trade houses and 380 crack buying by Chinese majors. However, this rally struggled to keep pace with the HSFO barge spreads, with the Sep’24 380 vs 3.5% barges seeing rangebound price action around $16.75/mt.
Interestingly, both the NWE and Asian HSFO flat price contracts have shifted from a weak correlation with Dubai, including an inverse relationship between 3.5% barges and Dubai, to a strong positive correlation with the medium sour crude.
180 began the new month on a weak foot, but cargoes were quickly bought up, and Visco (180-380) turned bid down the curve, with trade houses and refiners notably buying the diff.
Very low sulphur fuel oil (VLSFO) saw a fortnight of two halves. The Sep’24 0.5% barge crack fell from $3.90/bbl on 26 July to $3.40/bbl on 01 Aug, before again rising to $3.90/bbl on 09 Aug (at the time of writing). Banks were on the buy side of the Cal’25 Euro 0.5 crack up to $1.85/bbl.
The Sep’24 Sing 0.5 crack saw similarly rangebound price action. Flow-wise, the contract saw trade house buying at the start of the fortnight, but turned to selling into August. Still, trade houses bought over 810kb of the Sep/Oct’24 spread from Onyx over the past two weeks. Banks were seen buying the Q4’24 Sing 0.5 crack up to $9.75/bbl.
Inventories of heavy distillates used for power generation and shipping fuel around the UAE’s bunker hub of Fujairah decreased by 4% over the week ending 05 Aug to a one-month low of 9.316mb – as per data by Fujairah Oil Industry Zone. However, a Platts survey of local bunker suppliers showed that end-user demand for LSFO was still lower than expected levels in August.
Finally, we see a rise in open interest (OI) across the fuel oil complex, especially in the Sep’24 0.5 E/W, which climbed by 55% fortnightly. The Q4’24 380 E/W also saw an 18% rise in OI.
