Asia’s refining cracks for 380-cst high sulphur fuel oil (HSFO) surged to a multi-year high on Wednesday, driven by a decline in crude oil futures and robust seasonal demand anticipated as we approach late-Q2. According to data from LSEG, the Singapore HSFO/Brent crack closed at a premium of $2.15 per barrel for the prompt contract, marking the highest level since November 2018. Market sources indicated that strength is also visible in the HSFO derivatives market, especially as the forward curve shows promise.
Typically, HSFO experiences a rise in value as Middle Eastern summer demand increases in the second quarter. The timespread for the June/July 380-cst HSFO contract remains strong, indicating backwardation of nearly $10 per metric ton, while the July/August contract trades above $13 per ton. Despite fluctuations in the derivatives market, spot trading activity has been relatively subdued toward the month’s conclusion.
Additionally, a lower-priced trade for very low sulphur fuel oil (VLSFO) emerged on Wednesday, slightly impacting the cash premium, though the VLSFO crack remains robust, holding above $10 per barrel. In refinery updates, Portugal’s Galp will begin a phased restart of units at its Sines oil refinery following a significant power outage that halted operations. Meanwhile, Mexico’s new Olmeca refinery is reportedly ready to resume production after President Claudia Sheinbaum dismissed claims of a temporary outage due to sabotage.
In other news, oil prices continued their decline on Wednesday, heading toward the largest monthly drop in over three years amid concerns about fuel demand due to the global trade war and potential supply issues. Additionally, China has lifted the 125% tariff on ethane imports from the United States, while Russia’s offline primary oil refining capacity is projected to increase by 5.7% month-on-month. Lastly, U.S. conglomerate Koch’s Minerals & Trading unit is exiting the crude and refined products sector to refocus on consumer goods.