The Asian high sulfur fuel oil market is likely to strengthen, and quite significantly so, from prevailing levels as oil majors and trading giants begin to increasingly eschew Russian-origin oil, traders said.
Several market participants including oil majors, leading traders and shipowners had already voluntarily distanced themselves from trading Russian-origin oil since its invasion of Ukraine a year ago.
The G7-led coalition’s decision to impose from Feb. 5 price caps on seaborne Russian petroleum products has however upped the ante in terms of constraints to finance, ship and insure Russian oil-related trades.
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As such, the volume of Russian oil product flows, including vast amounts of fuel oil, into major trading hubs in Asia, which has hitherto been a destination of choice for these barrels, is likely to decline, traders said.
“You can probably see that [Russian oil eschewal] starting to take effect in the forward structure and the print values for the window,” a Singapore-based fuel oil trader said in reference to the recent uptick in valuations of the Singapore HSFO market.
The spread between front-month FOB Singapore 380 CST HSFO swap and front-month 380 CST Rotterdam barge, also known as the East-West swap spread, which measures the viability to ship oil East, was assessed at $19.5/mt on Feb. 22. The spread, which was assessed at $1/mt on Feb. 10, has surged almost twentyfold in a matter of eight trading days, S&P Global Commodity Insights data showed.
“Think the ARA [Amsterdam-Rotterdam-Antwerp] region is weakening, and Singapore seems to be pulling product,” another Singapore-based fuel oil trader said.
A strengthening of the Asian 380 CST HSFO market was also reflected in the uptick seen in refining margins for the product.
The front-month FOB Singapore 380 CST HSFO swap spread against front-month Brent swap rose to minus $17.58/b at the Feb. 22 Asian market close, a near nine-month high. The front-month 380 CST HSFO crack has strengthened by over $5/b from two weeks ago, when it was assessed at minus $22.88/b on Feb. 10.
An optimistic market sentiment is also reflected in the consolidation of the market structure at the front of the Singapore 380 CST HSFO swaps curve, which has strengthened from minus $2.5/mt on Jan. 12 to $3.3/mt on Feb. 15, before inching lower to $2.75/mt on Feb. 22, S&P Global data showed.
“There’s a little bit of strengthening going on down the 380 curve. Europe has been softer and the East-West has really taken a big move up,” a trader said.