After a torrid March, April brought a little respite for Asian refiners which produce 0.5% sulfur marine fuel with a slight uptick in demand, although bearish factors on the supply side due to the coronavirus pandemic still weighed heavily on the market.

The average 0.5% marine fuel spread, the premium of the front-month Singapore Marine Fuel 0.5%S swap over the Dubai crude oil swap, declined $1.82/mt from the March average to $9.24/mt for April. In response to the falling margins, regional refiners like Taiwan's Formosa Petrochemical Corp and Thailand's PTT Global Chemical reduced export volumes over the month in line with previously stated plans.

However, volumes from India continued to flow while Chinese refineries also ramped up operating rates in April, largely offsetting any major tightening in supply in the Asian market. Furthermore, India's extension of a lockdown that began on March 25 by an additional three weeks forced at least two refineries to postpone their late-March/April turnarounds by a month. Bharat Petroleum Co. Ltd. and Mangalore Refinery and Petrochemicals Limited were among the refineries continuing to offer 0.5% and 1% sulfur fuel oil cargoes over this period, amid reduced demand from the domestic market.

One of the most notable developments of the month in the Singapore oil trading market was the exit of Lim family-owned Hin Leong Trading, which along with its shipping business Ocean Tankers Pte. Ltd. filed for bankruptcy protection April 17, after racking up significant inventory and futures losses. The court filings showed Hin Leong Trading’s liabilities exceeded its assets by $3.336 billion as of April 9.

On the demand side, things looked a little better with bunker traders expecting Singapore's April low sulfur bunker sales to record as much as, if not more than, the March volumes of 3.08 million mt, according to IE Singapore data, in a sign that things might be improving downstream.

Marine Fuel 0.5%S cash differentials to the Mean of Platts Singapore strip remained in discounted territory over the whole of April, even falling to a seven-month low of minus $15.49/mt on April 24 on the back of "traders clearing their old stocks, and making way for new inventory," according to a Singapore-based trader.

Floating inventory of LSFO around Singapore also decreased by about 1 million mt in April to approximately 4.2 million mt, although interest in storage space, both landed and floating, also picked up as the front-month contango between May/June Marine Fuel 0.5%S swaps widened to a monthly average of minus $9.56/mt, compared with the minus $5.11/mt contango in March. The heightened interest in tank space sent the cost to lease landed dirty tanks rise well over 25% from a year ago in recent months, to about $7/cu m per month. Vessel owners based in Singapore also reported an increase in inquiries, with one owner saying: "We've received standing instructions to inform certain traders of whether even part of one of our VLCCs, let alone the whole one, becomes available."

Meanwhile, the ongoing impact of the pandemic put downward pressure on European fuel oil markets in April, with traders looking to store product amid sluggish demand.

Once again prices for 0.5% marine fuel barges in Europe dropped further to fresh all-time lows, as seen on April 27 at $135.25/mt.

Storage economics

However, out of most transport fuels, fuel oil has seen relatively more demand due to ongoing shipping operations, with seaborne trade counting for around 90% of global trade. This has seen the unlikely price inversion of jet and 0.5% marine fuel barges, as the jet market races to floating storage due to the severe impact on global demand with airlines forced to ground their fleets. Fuel oil however, has not yet seen this rush, but with the contango structure steepening many are keeping their eyes on the economics, as once inland is full floating storage remains the only option. But with the market saturated with the likes of jet and gasoline, dirty tanker owners west of Suez are cleaning their vessels to load clean petroleum products, as the clean tanker market booms on tightened tonnage lists and floating storage demand.

"If inland [storage] is full we won't buy anymore," a trading source said, adding that with a contango of around $20/mt there is less incentive to clean tanks for clean products. It was noted that refiners, however, do not have the same flexibility and may be forced to float if storage sees further strain.

Stocks of fuel oil in the Amsterdam-Rotterdam-Antwerp hub jumped 18% to 1.604 million mt in the seven days to Wednesday, according to data from Insights Global, reaching a fresh 22-month high. The Insights Global data does not provide a breakdown between fuel oil types.

Furthermore, the high sulfur fuel oil market was not unscathed by the crashes in oil prices either, after dropping to a two-decade low April 27, when 3.5%S FOB Rotterdam barges were assessed at $79.75/mt, the lowest since June 1999.

Alongside these declines, the spread between 0.5% and 3.5% bunker fuel at Rotterdam narrowed to fresh lows again this month, at $38/mt on April 15.

As an indicator of the investment payback for scrubber installations, some shipowners continued to have second thoughts about payback economics as the pressure on marine fuel prices raises the stakes.

“[We] previously projected 3,500 scrubber installations globally by the start of 2021, but this will likely not be met with disruptions from coronavirus and cancellations due to the narrowing price spread between high and low sulfur fuel,” Alexander Yap, senior analyst at S&P Global Platts Analytics, said.

In the US, prices for marine fuel 0.5%S reached all-time lows in April on a drop in the underlying crude complex and weak demand, despite a steep contango.

US Gulf Coast marine fuel 0.5%S hit an all-time low of $145.75/mt April 28, though the market rebounded to end the month on the back of a jump in crude prices.

Sources said there was decent demand in March for marine fuel 0.5% due to a contango market structure which encouraged buying for storage purposes.

Storage filled up quickly from this buying, and was made worse due to a bigger hit in gasoline demand. A lack of drivers on the road meant less gasoline production and more available 0.5%S blending components like VGO and straight run fuel oil available with no buying interest, sources said.

Two traders said April had been one of the quietest months either had ever experienced as a fuel oil trader.

The May USGC marine fuel swap on April 28 was assessed at a discount of 25 cents/b to the May Brent frontline swap, the first time the product had been assessed at a discount to crude since June last year, Platts data showed.

The contango structure for the USGC marine fuel 0.5%S swap also widened in April. The contango from the May to December swaps widened from $7.40/b on April 1 to as wide as $10.65/b on April 28.

Multiple sources said that even with the contango present in the market, there had been little word of floating storage from US market participants for marine fuel 0.5%S.

One source pointed to large fluctuations in the price of oil tankers as a reason for floating storage being a risky proposition.