SINGAPORE: Global supply of fuel oil, used by ships and power plants, is expected to grow in the third quarter, depressing the marine fuel market as shipping demand remains weak, analysts and trade sources said.
Third-quarter supply is estimated to rise by 620,000 barrels per day (bpd) from the second quarter as China and Brazil increase production, according to consultancy Energy Aspects.
This comes as inventories across key marine refuelling hubs recently reached all-time highs, depressing bunker fuel prices and refiners’ margins and dashing hopes for a profitable year for sellers of low sulphur fuel that meets new emission regulations set by the International Maritime Organisation.
“We had nine-10 million tonnes (of fuel oil inventories) at the start of the year that was supposed to draw by the start of the second quarter, but we are seeing 13m tonnes now and (it is) building every month,” said a senior fuel oil trader.
Inventories in northwest Europe and the UAE were at record highs in June while those in top bunkering port Singapore climbed to their highest level in more than three years.
Record supplies have depressed the delivered VLSFO (very low sulphur fuel oil) bunker spot discount to around record lows of about $45 per tonne below benchmark gas oil prices and cut Asian refiners’ profits by nearly 80 per cent from their record highs at the start of the year to $10.25 a barrel on Thursday, according to trade sources and Refinitiv data.
Signs of weakness in bunkering demand have also emerged in Singapore, which is by far the world’s largest marine refuelling hub, and in the UAE’s Fujairah hub.
“Until recently, bunker fuel sales at key bunkering hubs were buoyed by opportunistic restocking, but sales volumes have since caught up with the reality of slowing global trade,” Energy Aspects said.
“Weak demand and rising supplies have meant that VLSFO cracks are struggling to stay in positive territories as refinery restarts on account of improving on-road fuel demand continue to depress the sluggish bunker market.”
And the demand outlook remains weak, according to multiple Singapore-based bunker traders.