Asia fuel oil discount to Dubai crude at narrowest in eight months
(Reuters) Boosted by supply constraints and lower global inventories, the discount of 180-centistoke fuel oil in Asia to Dubai crude oil was at its narrowest in almost 8 months on Tuesday, though further upside may be limited.
The front-month discount for 180-cst fuel oil to Dubai, known as the crack spread, rose for a seventh consecutive session on Tuesday to $3.22/bbl, its narrowest since Jan. 26, data on Thomson Reuters Eikon showed.
"We were bullish on fuel oil because of Venezuelan and Russian supply issues, as well as the fact that among all products, fuel oil is the only product in year-on-year deficit in key hubs," says Nevyn Nah, oil products analyst at Energy Aspects.
In Singapore, months of declining arbitrage volumes left onshore fuel oil inventories STKRS-SIN at a 18 month low in late August, while European run cuts and fewer Russian exports lowered supplies in the Amsterdam-Rotterdam-Antwerp (ARA) oil hub STK-FO-ARA to 18-month lows last week.
Similarly, lower refinery capacity utilization in the US reduced fuel oil inventories RFO-STK-T-EIA, which fell 14% from a 23-year high seen in February to 40.58 MMbbl, data from the Energy Information Administration showed.
"Cracks have exploded," said a Singapore-based fuel oil trader, pointing out that Russian exports of the fuel have fallen sharply due to refinery upgrades.
While Russian fuel oil exports FO-RU-EXP, have recovered from an almost eight-year low of 2.73 MM tons in February, year-to-date average monthly exports of 3.33 MM tons are still well below the 2015 average of 4.73 MM tons.
In Venezuela, where the fall in crude prices has left its state-led economy in crisis, fuel oil exports have also slumped because of lower runs at its ailing refineries.
Venezuelan fuel oil exports to Singapore averaged 520,000 tons a month in 2016, compared to 572,000 tons in 2015 and 659,000 tons in 2014, official data compiled by Reuters showed.
However, given the current strength in fuel oil cracks and the ease with which production could be ramped up especially with the spike in refinery profit margins this month globally, the upside to fuel oil cracks might be limited, said Nah.
Demand for shipping fuel, also known as bunkers, has been a key pillar of support for fuel oil this year in Singapore and South Korea, which started ramping up rapidly in August last year, said Nah.
Yet, sales of Singapore bunker fuels fell for the first time in 16 months in August as the shipowners idle vessels amid the industry's longest-running crisis in 30 years.
"Base effects become significant from now on, which was why August bunker sales in Singapore fell year-on-year for the first time in 16 months." said Nah. "It's something to watch."
Reporting by Roslan Khasawneh;
Editing by Christian Schmollinger
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