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Asia's fuel oil premiums more than function as Russian sanctions stimulate supply risks

Spot premiums of fuel oil have more than doubled in Asia ever since the U.S. enforced wider sanctions on Russian oil and tankers, clouding the supply outlook, trade sources said.

Asia has been an essential receiving center of Russian high-sulphur fuel oil barrels, particularly after Russia's intrusion of Ukraine in 2022 triggered sanctions from the West.

More just recently, the U.S. enforced broader sanctions aimed at even more curtailing Russian oil supply and distribution.

Most of the freshly approved tankers are crude oil providers, though some item tankers were also consisted of in the list.

The wider sanctions have actually clouded the outlook for fuel oil supply, with some dangers priced in for logistical difficulties to transportation Russian fuel, in addition to higher freight rates, trade sources said.

Reflecting supply risks, the benchmark Singapore money premium for 380-cst high-sulphur fuel oil has touched its highest point in 7 weeks, reaching about $9.50 a metric lot on Jan. 20, pricing information << FO380-SIN-DIF > showed. This> compared with about $3.50 on Jan. 9 before the wider sanctions were announced.

Area premiums for Middle Eastern barrels are anticipated to increase as demand for alternative supply enhances, according to sources. Costs for straight-run fuel oil options sold to China have actually also increased.

Iraqi high-sulphur straight run fuel was offered to China at premiums of about $40 a metric lot to Singapore quotes earlier this month, market sources said, compared with premiums below $ 30 done towards late November.

It is extremely unlikely that China is going to take Saudi or Iraqi (fuel oil) barrels for the longer term at such premiums, they do not have the economics to do that, a fuel oil trader stated.

China's general demand for fuel oil is expected to soften this quarter as a hike in the item's import tax and lower tax refunds increased expenses.

Singapore premiums for low-sulphur fuel oil << MFO05-SIN-DIF >. have also climbed in current sessions, driven by firmer belief. in the high-sulphur market, though sufficient blendstock supply. need to top gains, sources said.

(source: Reuters)