Asia Fuel Oil-Cracks recover as crude prices tumble

Fuel oil crack discounts narrowed on Friday thanks to falling crude prices and a decline in inventories at key storage hubs during the week. Oil prices fell more than 2 percent after data showed U.S. production rose last week just as OPEC exports hit a 2017 high, casting doubt on efforts by producers to curb oversupply.

CRACKS

The barge fuel oil crack discount to Brent crude for August on the Intercontinental Exchange (ICE) had narrowed to about $4.85 a barrel by 6 p.m. Singapore time (1000 GMT) from $5.30 a barrel in the previous session.

On Friday last week, the August barge crack was trading at a discount of $4.80 a barrel but sank as low as minus $5.70 a barrel by Tuesday on mounting selling pressure.

Fuel oil cracks are expected to remain high in the current quarter amid peak summer demand and supply constraints on the back of refinery maintenance and production issues.

The mix of bullish supply and demand fundamentals pushed fuel oil cracks in June to some of their highest levels in years. – South Korean and Japanese refiners are running their plants at near-maximum capacity to cash in on profit margins at five-month highs, industry sources told Reuters.

ARA INVENTORIES

Fuel oil stocks in the ARA hub fell 6 percent to 0.96 million tonnes in the week to July 6 as incoming supplies were more than offset by exports. – Compared with the same time last year, ARA fuel oil inventories are 18 percent higher.

A fully laden VLCC arrived at the oil hub on June 27, loaded a full cargo of fuel oil and departed to Singapore on June 5, PJK data showed.

Ship tracking data in Thomson Reuters Eikon shows the Gunvor chartered VLCC, Zourva, left Rotterdam with 270,000 tonnes of fuel oil on July 5 and is due in Singapore on Aug. 14.

Official data released on Thursday showed Singapore onshore fuel oil inventories fell 3.5 percent, or 114,000 tonnes, to 3.2 million tonnes in the week to July 5.

WINDOW TRADES

Three cargo trades were reported in the Platts window totalling 20,000 tonnes of 180-cst fuel oil and 40,000 tonnes of the 380-cst fuel.

OTHER NEWS

Bangladesh’s plan to start importing liquefied natural gas (LNG) next year will likely dampen its demand for oil used in power generation, government and industry sources said.

Commodity trader Cargill Inc completed the sale of its petroleum business to Australian investment bank Macquarie Group Ltd on June 30, a company spokeswoman said.