The Singapore 380 CST high sulfur fuel oil cash differential hit a record high of $33.65/mt Tuesday on tight prompt availability, but traders do not expect this strength to be sustained as the market heads into trading of October-loading barrels.
They expect these heady premiums to cool off as soon as the market is more ready to meet the low sulfur mandate.
The cash differential for FOB Singapore 380 CST HSFO rose $9.05/mt day on day to $33.65/mt Tuesday, S&P Global Platts data showed.
"I doubt that it will be as bad as it is now," a Singapore-based fuel oil trader said about the tight availability of 380 CST HSFO for prompt supply.
"There is still buying interest from some people due to demand that has not yet been covered. But most suppliers don't have prompt molecules to supply as they are already committed to fulfilling their own shorts ... unless you can get hold of some barrels that you can sell into these bids," he added.
The ongoing process of transitioning to a low sulfur environment, which entails preparing terminal infrastructure and converting barges to be able to deliver IMO-complaint fuel, is one that is causing operational delays, traders have said.
"This is having an impact on cost, more so on the ex-wharf and delivered [bunker] side than on [fuel oil] cargoes," the fuel oil trader said.
The Singapore delivered 380 CST bunker premium to Mean of Platts Singapore 380 CST HSFO soared to $44.73/mt Tuesday -- the highest since Platts first published the bunker fuel assessments in 1990, Platts data showed.
"There will be less focus [on HSFO] going into October," a Singapore-based fuel oil trader at a Western company said.
"Most of the consumers would have already switched to low sulfur [fuel oil] by then," he added.
The recent strength in the Singapore HSFO market was also on the back of the transition towards the lower sulfur environment.
"Logistics. That's going to be the main choke point for the high sulfur fuel oil market in Singapore," another fuel oil trader at a Western company said.
"Barges are changing to cater to the low sulfur [bunker] demand, terminals are changing too," he said.
"We should start to see inquiries from shipowners [for LSFO] by October ... even by end-September, I think," the first fuel oil trader said, referring to the beginning of a pick-up in demand for IMO-compliant marine fuel.
The Singapore 380 CST HSFO Q4 2019/Q1 2020 spread on Tuesday stood at $22.25/mt as of 4:30 pm Singapore time (0830 GMT) -- the highest since August 1, 2019, Platts data showed. While the market is strongly backwardated at the prompt, stepping into Q1 2020 the structure for the Singapore 380 CST fuel oil curve flips into a contango, as HSFO demand is expected to face a slump as markets adapt to using low sulfur oil.
The Singapore 380 CST Q1/Q2 spread stood at minus $2.38/mt on Tuesday, Platts data showed.
