Spot fuel oil premiums hit more than nine-month highs at Asia oil hub
By Jeslyn Lerh
SINGAPORE, Sept 4 (Reuters) -Spot premiums for 0.5% low-sulphur fuel oil (VLSFO) in Asia have jumped to their highest in more than nine months as supplies tightened with a lack of blending components for marine fuels and peak power demand in the Middle East during summer.
The recent price strength for the oil, which is used to power ships and generate electricity, is keeping refuelling costs high for ships calling at Singapore, the world's largest bunkering hub.
However, industry sources expect the price rally to cool in the fourth quarter as supplies to Asia recover.
Spot cash premiums for 0.5% VLSFO soared above $19 per metric ton to Singapore quotes on Wednesday, their highest level since late November 2023, Reuters data showed.
Delivered bunker premiums for the product climbed to nearly $40 per ton last week, hitting their highest in over six months, but have eased slightly this week, bunker market sources said.
Supplies to Asia have been capped as more fuel oil was directed to the Middle East during its peak summer demand season, traders and analysts said.
The situation was exacerbated by lower supply of blendstocks, which are components used for blending cargoes into marine fuels of optimum specifications, fuel oil traders said.
"There is tightness in the Fujairah markets. That incentivised a stronger flow of VLSFO there at the expense of lower arrivals pointed to Singapore," said Royston Huan, fuel oil and feedstocks analyst at consultancy Energy Aspects.
The VLSFO market remains in steep backwardation for now, with the balance-September/October contract pegged at about $28 per ton on Wednesday. Backwardation refers to higher prompt prices than those in future months, signaling tight supply.
The market strength is likely to ease in the fourth quarter as supplies are set to improve, traders and analysts said.
"We expect Q4 VLSFO spreads and cracks to soften as Brazilian availability picks up, while the Fujairah bunker market weakens," Huan said, referring to monthly price spreads and refiners' margins for producing VLSFO.
Emril Jamil, senior analyst at LSEG Oil Research, said: "The mid-term outlook for the low-sulphur market is softer on the back of expected higher supplies from Kuwait's al-Zour to Greater Singapore after the Middle East peak summer demand season.
"The current tightness in finished LSFO products has also lifted Australia's blendstock crude premiums," said Jamil, adding that September-loading cargoes for Vincent crude are valued at premiums of $10 per barrel to dated Brent, up by $3 from levels for August-loading cargoes.
Reporting by Jeslyn Lerh; editing by Florence Tan and Jason Neely
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