Asia's fuel oil premiums more than double as Russian sanctions spark supply risks
Spot premiums of fuel oil have more than doubled in Asia ever since the U.S. imposed broader sanctions on Russian oil and tankers, clouding the supply outlook, trade sources said.
Asia has been a key receiving hub of Russian high-sulfur fuel oil barrels, especially after Russia's invasion of Ukraine in 2022 sparked sanctions from the West.
More recently, the U.S. imposed wider sanctions aimed at further curtailing Russian oil supply and distribution.
Most of the newly sanctioned tankers are crude oil carriers, though some product tankers were also included in the list.
The broader sanctions have clouded the outlook for fuel oil supply, with some risks priced in for logistical challenges to transport Russian fuel, as well as higher freight rates, trade sources said.
Reflecting supply risks, the benchmark Singapore cash premium for 380-cst high-sulfur fuel oil has touched its highest point in seven weeks, reaching about $9.50/tonne on Jan. 20, pricing data FO380-SIN-DIF showed. This compared with about $3.50/tonne on Jan. 9 before the broader sanctions were announced.
Spot premiums for Middle Eastern barrels are expected to rise as demand for alternative supply strengthens, according to sources. Costs for straight-run fuel oil alternatives sold to China have also risen.
Iraqi high-sulfur straight-run fuel was sold to China at premiums of about $40/tonne to Singapore quotes earlier this month, industry sources said, compared with premiums below $30/tonne done towards late November.
"It is very unlikely that China is going to take Saudi or Iraqi (fuel oil) barrels for the longer term at such premiums, they don't have the economics to do that," a fuel oil trader said.
China's overall demand for fuel oil is expected to soften this quarter as a hike in the product's import tax and lower tax rebates increased costs.
Singapore premiums for low-sulfur fuel oil MFO05-SIN-DIF have also climbed in recent sessions, driven by firmer sentiment in the high-sulfur market, though ample blendstock supply should cap gains, sources said.
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