Fuel Oil
Market Overview
Higher refining runrates in Asia does not translate to more fuel oil necessarily as the crude slate has become lighter.
With inability to turn up supply higher without medium sour crudes, Singapore would likely see a shortage of VLSFO which arbs alone cannot solve further down the road.
From the seasonality chart, Q3 0.5% crack has plenty more upside to go.
Bunker fuel demand is less elastic than diesel demand. And yet the production of fuel oil is likely more disrupted than diesel for the next few months.
Current spread of 0.5% to 10 ppm has dropped to -505$/t levels, which does not seem justified given the stronger fundamentals for VLSFO.
