Asian Fuel Oil Surges to One-Year High Amid Tight Supply and Resilient Demand

Profits of the Asian refiners from very low sulphur fuel oil (VLSFO) have climbed to one year high this week due to shortage of supply and consistent demand push from countries which could be a traced throughout 2021, as per analyst predictions.

Due to the control of OPEC+ over fluctuations in the crude oil values, the supply of fuel oils in 2021 is expected to remain under pressure if crude producing bodies continue with their stiff behaviour. This week, Brent crude oil prices rocketed to a 13-month high to around USD 65/bbl prompting refining margins for VLSFO to soar higher. While the OPEC+ allies have kept a hold on supply, the investors are anticipating that fuel demand will rise in the coming months.

In East Asia, the main importer of fuel oil is Singapore which is a hub for trading and storage of fuel oil. Prompt VLSFO in Singapore was traded around USD 514.00 per tonne on Monday, 3^rd March which is highest since last year. During the start of 2021, the margins over VLSFO stood around USD 11.74/bbl which rose to USD 15/bbl above the Dubai crude on Tuesday, at their highest since February 2020. As per the reports, although the margins on VLSFO have been on rise, VLSFO inventories in Singapore have tumbled to the levels of USD 10.7 million barrels.

The main reasons behind the high margins on VLSFO are-first, the bunker fuel demand in the region has quickly crawled back to pre-pandemic levels and secondly, there has been a slight demand shift to VLSFO due to prevailing shortages of Liquified Natural Gas (LNG) across the world. The gap in supply and demand of fuel oil in Asia has also benefitted Venezuela as the country has reported a dounble-digit growth in the export of fuel oil to its new clients in Asia during January and February.

As per ChemAnalyst,”Since there continues to remain controversy over the usage of VLSFO ship fuel at the global level, the overall outlook for the Asian market is uncertain. In the near term, the product cracks seem to climb higher taking cues from cold weather conditions and hovering optimism about vaccines despite renewed restrictions in some economies due to the new virus strain.”