The FOB Singapore cash differential to the Mean of Platts Singapore assessment for 180 CST high sulfur fuel oil widened to a near six-month high Monday, on increased demand for 180 CST as a cutter stock amid heavy refinery maintenances in the Middle East.
After flipping day-on-day from a discount of $2.16/mt to a premium of 13 cents/mt March 7, the differential has steadily firmed, surging $1.49/mt from Friday to be assessed at $3.04/mt on Monday.
The cash differential for the lower viscosity grade fuel oil was last higher on September 14, at $3.36/mt, Platts data showed.
Cash differentials for physical fuel oil represent the price buyers are willing to pay against benchmark values published around the day a cargo loads.
The arrival of an estimated 1.5 million mt of high density and high viscosity material from the US Gulf Coast into Singapore in April -- said to be the highest monthly volume ever from the USGC -- has proved to be a shot in the arm for the 180 CST fuel oil market, said trade sources.
"High density and high viscosity arrivals are going to be at an all time high. With the possible exception of Venezuelan product all the barrels coming in from the US are high density and high viscosity," said a trader at an oil major.
The 180 CST fuel oil is often used as cutter stock to blend down heavy fuel oil grades to bunker specification fuel.
"The influx of high density and high viscosity oil from the US has coincided with the turnaround season in the Middle East -- which produces relatively lower density, lower viscosity fuel oil. Also, there isn't much cracked M100 coming over either. So overall, the average density and average viscosity in the market is looking quite high," said the oil major source.
"It's not easy to find on-specification 380 CST fuel oil for end-March [and] early-April. So anybody looking for cargoes might have to pay a higher premium. This also means demand for 180 [CST HSFO] as a blend stock has gone up," a South Korean trader said.
The cash differential for 380 CST HSFO, after flipping from a discount to a premium in end-February, steadily rose to a near five-month high of $2.54/mt March 7 -- it was last higher on October 3 at $2.59/mt. But the differential has since inched 7 cents/mt lower over the last two trading days to $2.47/mt Monday.
"There wasn't a lot of Western arbitrage oil that arrived during end-February to the first decade of March period. So this had led people to not sell much cargo. For the first half of March there isn't a lot of on-specification bunker grade cargo left in storage within the market. So there is surely some tightness for prompt availability of bunker grade barrels," said a trader about the firming 380 CST HSFO market.
But another trader said the tightness in the prompt market would not sustain. "There seems to be some tightness for prompt on-specification barrels, but that will be short-lived. There are barrels arriving in the second half [of March] and in April. So, I'm not sure the market is so tight as it is made out to be. I think the strength we're seeing now is more momentum-driven than fundamental-driven," he added.
Meanwhile, led by a relatively firmer 180 CST HSFO, the viscosity spread has surged in the past four consecutive trading days -- up from 82 cents/mt on March 5 to a three-month high of $10.19/mt Monday. The viscosity spread was last higher on December 10, at $10.70/mt.
