Tight blendstock supplies should keep Asia's very low sulfur fuel oil market firm through September before seasonal supply improvements trigger a correction later in the year, Kpler said Tuesday.
Kpler expects East of Suez VLSFO to remain supported through August and September as limited low-sulfur blending components and fewer heavy sweet crude arrivals tighten prompt market balances.
Total blending component arrivals into Asia reached about 850,000 tons in July. High sulfur straight-run fuel oil volumes increased to 580,000 tons from 270,000 tons in June, while low sulfur straight-run fuel oil arrivals dropped to about 100,000 tons from 340,000 tons.
European supply also declined to 44,000 tons as refiners prioritized summer fuel production, according to the note.
Low-sulfur crude arrivals into Singapore fell 36.7% over the month to about 420,000 tons in July. August heavy sweet crude arrivals currently total about 340,000 tons, including at least 300,000 tons from Brazil.
Kpler said refiners diverted more low-sulfur components into gasoline and middle distillates, tightening supplies of blendstocks and compliant VLSFO. Singapore 0.5% fuel oil has underperformed both 92 Research Octane Number gasoline and 10 parts per million gasoil since early July.
The tighter market lifted Singapore's prompt 0.5% fuel oil structure. Inter-month spreads climbed to $32 to $34 per ton, up more than $10 per ton since early July, while the M1/M2 spread gained more than $20 per ton to reach $50 per ton on July 22.
Cash differentials also widened by more than $15 per ton since early July to above $30 per ton. Lead times lengthened to 16 to 18 days from 7 to 11 days, highlighting tighter prompt VLSFO supply, according to Kpler.
Kpler expects the forward VLSFO market to soften from October and November as the summer gasoline season ends and additional blending components become available, easing current supply tightness.
The firm also expects Asian Hi-5 spreads to remain near current levels as peak bunker demand and longer shipping routes support fuel consumption. However, higher bunker prices and slower vessel speeds should limit further gains.
Looking ahead to August, PETRONAS' Pengerang refinery is offering an early-loading cargo of 500,000 barrels of atmospheric bottoms, according to Kpler.
Exports from Indonesia are expected to total 110,000 tons, comprising 94,488 tons of low-sulfur waxy residue from Balikpapan and 15,748 tons of decant oil from Cilacap.
Taiwan's Mailiao refinery is offering 11,000 tons of pyrolysis fuel oil and 40,000 tons of main column bottoms for loading late next month, according to Kpler.