Asian HSFO rally cools with lower demand, rare exports

Spanish Market: Oil products
27/10/21

Asian high-sulphur fuel oil (HSFO) markets have weakened considerably after a summer power generation-fuelled rally for the past few months, against cooling demand and higher exports.

Singapore 180cst HSFO margins, or front-month Singapore 180cst swaps against Dubai crude values, fell from over 10-month highs on 7 October to five-month lows of -$8.48/bl yesterday, Argus' assessments showed. Margins were last lower at -$8.89/bl on 25 May.

The backwardation in 180cst and 380cst HSFO markets have also come off sharply from over 1½-year highs in early September. The 180cst HSFO timespread was at an over four-month low of -$0.25/t on 22 October, before rising to $0.25/t today. The 380cst HSFO timespread fell to -$0.50/t today, with it last at such a level on 15 June.

Markets softened against summer power generation demand from Pakistan, Bangladesh and the Mideast Gulf coming off recently with cooling temperatures, said market participants. Pakistan's state-owned PSO bought just 65,000t of the 180,000t of HSFO and low-sulphur fuel oil it sought for first-half November delivery. Bangladesh's HSFO import volumes next month are forecasted to be a three-month low of 135,400t, down from three-year highs of 329,200t in October, according to Vortexa data.

With slowing summer demand, HSFO exports from the Mideast Gulf are seen to be higher in October, possibly around 1.6mn t (332,900 b/d) or north of that, said traders and analysts. Vortexa data also shows that total exports this month could rise to 1.95mn t (406,200 b/d), a year high. Monthly exports from July-September averaged 1.69mn t.

Rare exports add to regional barrels

Rare 380cst HSFO shipments from Kuwait and South Korea have also added to regional supplies.

Kuwait's KPC recently exported 100,000-120,000t of 380cst heavy fuel oil (HFO) for end-October loading, due to the fire at its 346,000 b/d Mina al-Ahmadi refinery's atmospheric residual desulphurisation (ARDS) unit. It was likely clearing inventory to make room for excess fuel that could surface with the unit down. This was its first export since May, and a reversal from its purchases for July-October delivery. It is not yet confirmed if KPC will offer more HFO, according to a source familiar with refinery operations.

South Korea's GS Caltex, a typical 380cst HSFO importer, previously sold rare volumes in a 40,000t cargo each for September and October loading, as it maximised HSFO output against weak bitumen markets. Refiners typically alternate production between HSFO and bitumen, with the margin between the two products one of the factors considered when deciding on output. GS Caltex has offered three times the volumes at 120,000t of HSFO for November loading, 80,000t of which has been sold. The cargoes have likely headed to China and most recently Singapore. The Argus ABX 2 bitumen index traded at over two-year lows of -$80.25/t to Singapore 380cst HSFO prices on 8 October, though it has narrowed to -$44/t on 22 October.

HSFO arbitrage arrivals from the west of Suez to Singapore in October were also higher than average at 2.3mn-2.8mn t (478,500-582,600 b/d), said market participants, likely owing to healthy east-west spreads.

Higher Asian refinery utilisation rates with stronger regional transportation fuels demand could further pressure margins as well. Market participants also anticipate possible slowing straight-run fuel oil demand from Chinese independent refineries next month, as a fourth batch of crude import quotas has been released. These factors could further contribute to HSFO weakness, at least before any potential support from winter heating demand.

Delivered HSFO bunker premiums fall back to historical averages

Cooling demand and higher exports have caused HSFO bunker premiums in Singapore, or the price difference between cargo and delivered fuel, to retreat to long-term average values. Argus yesterday assessed the premium at $9/t, after it averaged over $15/t over the past three months. The premium spiked over $30/t twice in September, as the market grappled with fewer wholesale availabilities and quality issues with some cargoes](https://direct.argusmedia.com/newsandanalysis/article/2260467).

"Most suppliers have cargoes now," commented a local seller, reversing a previous trend over the past few weeks where only a few participants could supply HSFO.

Current HSFO bunker demand was described by one trader as "a bit soft" while another one commented that "there is still some tightness, which the current premium is not reflecting".

The weakening HSFO bunker market is also causing the premium of very-low sulphur fuel (VLSFO) over HSFO to rise sharply. It has averaged over $97/t so far in October, up from $80/t in September, according to Argus data. A higher premium of VLSFO over HSFO (or a larger discount of HSFO versus VLSFO) encourages ship owners to install scrubbers and save on fuel costs.

By Sarah Giam and Sammy Six

Asian 180cst HSFO margins against Dubai crude

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31/12/24

Viewpoint: USGC gasoline oversupply unlikely to ease

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Viewpoint: US Supreme Court tees up more energy cases

31/12/24

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Chancay port may increase Peru bunker demand

30/12/24

Viewpoint: Chancay port may increase Peru bunker demand

New York, 30 December (Argus) — The opening of Peru's Chancay port next year likely will boost the country's bunkering demand and drive-up competition on the Latin American Pacific coast. Able to accommodate larger ships and vessels equipped with marine exhaust scrubbers, the unveiling of the new facility — likely in the first quarter — could spur demand for very low-sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO). Chancay, which is owned by Chinese state-owned port operating company Cosco Shipping and Peruvian mining company Volcan, has a 17.8-meter depth, compared with a depth of 16 meters in El Callao part, which is south of Chancay near Lima, Peru. Chancay's depth allows it to receive container ships with a capacity of up to 18,000 twenty-foot equivalent units The larger vessels will likely take on around 3,000-5,000 metric tonnes of marine fuel in one port call, according to one source familiar with the Peruvian bunker market. "The port is gradually beginning to receive container vessels, RoRo, and bulk carriers," said Augusto Ganoza, who heads Chilean bunker supplier Agunsa's operations in Peru. "I anticipate an increase in bunkering demand at Chancay, particularly if vessels call at Callao first and then proceed to Chancay, which I believe will be the case for most." But bunker buying appetite in Chancay also will depend on marine fuel prices in China. El Callao VLSFO was assessed at a $85/t premium to Zhoushan, China, in November. That differential tightened from its peak earlier this year at $143/t in April. That differential could temper the expected increase in bunkering demand in Peru. Other market contacts from outside Peru said that any increase in demand stemming from Chancay's opening is unlikely to drag down activity in competing ports such as Panama, largely because of higher prices in Peru and better quality of bunker fuel available in Panama. The VLSFO November monthly average in El Callao was $656/t, which was an $89/t premium to Panama VLSFO. By Luis Gronda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US midcon E15 shift looms again

30/12/24

Viewpoint: US midcon E15 shift looms again

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President Joe Biden's administration avoided a potential disruption to seasonal E15 sales by tapping emergency powers in April 2022 to allow for the sale of E15 during the approaching summer, citing supply disruptions in the wake of Russia's invasion of Ukraine. EPA issued similar emergency waivers ahead of summer in 2023 and 2024 to facilitate the sale of E15, using the waiver 9 RVP gasoline. The US Congress is considering legislation options to avoid requirements to reformulate gasoline. A stopgap government funding bill that would fund the government through March included language to extend the one-pound waiver to E15 year-round and make the shift by the eight midcontinent states and the attached reformulation unnecessary. But the E15 provision was pulled from the stopgap funding bill following criticisms from President-elect Donald Trump and Telsa chief executive Elon Musk . By Zach Appel Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US fuel oil supply challenge to deepen

30/12/24

Viewpoint: US fuel oil supply challenge to deepen

Houston, 30 December (Argus) — US residual fuel oil supplies are dwindling and face multiple challenges in 2025 because of reduced global inventories and a persistent backwardation in the domestic market. Total US inventories of residual fuel oil fell to a historic 42-year-low multiple times during 2024, including nine instances in the fourth quarter alone, according to Energy Information Administration (EIA) data. Supplies hit rock bottom at just under 23mn bl in the week ending 29 November, down by 12pc year-on-year. Despite the shrinking supplies, the US market has shown little reaction. Throughout 2024, ICE Brent futures — the basis for US residual fuel oil — remained in backwardation between the front and second month, averaging $0.60/bl. This is nearly double the full year 2023 backwardation average of $0.39/bl. The persistent backwardation of the fuel oil curve means inventory figures lack the drive to encourage wholesalers and retailers to make purchases in anticipation of future demand, traders said. The diminishing future value results in potential losses for traders who are considering purchasing spot barrels for storage as forward prices are lower than current spot prices. Residual fuel oil is primarily used as a maritime fuel for large ships, a fuel for backup power generation and for various industrial purposes. In the US it is often refined further into other road fuels. The production of US residual fuel oil has been steadily increasing in recent years, beginning even before implementation of the International Maritime Organization's 2020 global rule imposing a 0.5pc sulphur cap on marine fuels. However, output averages over the past four years remain well below pre-2019 levels. Since the US imposed sanctions on Russian fuel exports in February 2023, weekly residual fuel oil imports into the US have averaged just over 100,000 b/d, nearly half of the previous two-year average at 196,000 b/d. Mexico has now become the largest fuel oil exporter to the US, accounting for nearly 33pc of all US fuel oil imports over the past two years, claiming the top spot from Russia. Planned expansion of Mexico's refinery infrastructure may crimp US supplies, however. Mexican state-owned Pemex's 400,000 b/d Dos Bocas refinery — which is still in the start-up process — would take a greater share of Mexico's Maya crude. Maya crude yields a significant portion of fuel oil when refined. This would leave less Maya bound for the US, which has taken nearly 60pc of Mexico's Maya over the past three-years, according to Vortexa data. Pemex is also adding two new coker units to its Tula and Salinas Cuz refineries as part efforts to become more self-reliant and add an additional 168,000 b/d of road fuel output. Coker units process fuel oil to turn it into higher value road fuels, which would curtail flows to the US. Refinery maintenance involving a few US crude distillation units is set to begin in January, which could further limit domestic fuel oil production. The National Weather Service's winter forecast for the east coast is expected to be warmer than usual, likely leading to reduced demand for both high-sulphur fuel oil used in power generation and low-sulphur blending components. By Craig Ross Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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