Fundamentals in the European fuel oil market pointed to a weak outlook.

While Amsterdam-Rotterdam-Antwerp fuel oil stocks fell last week, sources said the drop was the result of a weaker contango rather than returning demand.

0.5%S marine fuel

**Sources said they were still contending with ample stocks built over April and May, while demand remained relatively weak.

**Stocks of very low and high sulfur fuel oil in the Amsterdam-Rotterdam-Antwerp region dropped 11% to 1.521 million mt in the week to June 17, its second consecutive drop and the biggest fall in two months, according to data from Insights Global.

**The contango in the 0.5%S marine fuel market was flattening, weakening storage economics and causing many to release barrels from storage. That was adding pressure to the market on the supply side, while demand has yet to recover following the coronavirus pandemic. Sources expect demand return with a lag following the relaxing of country lockdowns.

**Market sources estimate western arbitrage flows of low sulfur fuel oil into Singapore to come in at 2 million mt in July, similar to June. Western arbitrage includes Europe and the Americas.

The inflow of arbitrage cargoes into Singapore declined to 2 million mt/month in June while Singapore used to receive more than 3 million mt/month in the first quarter.

**Demand for bunker fuel at Rotterdam was moderate last week, even as bunker values continued to fall under pressure from the supply overhang in the market.

** There was some hope for demand expectations to pick up in the coming weeks for bunker fuel. Container shipping giant Maersk revised up its guidance for volumes transported in the second quarter to a fall of 15%-18% rather than the 20%-25% estimate from its previous guidance.

** VLSFO FOB Rotterdam cracks were little changed on the week, rising 13 cents/b on the week to be assessed at $4.132/b June 19.

High sulfur fuel oil

**Meanwhile, in the high sulfur fuel oil market, strength continues on the back of increased demand for the US coker feed, sources said. Availability of the product has thinned, as refineries pre-IMO 2020 adjusted to focused on lower sulfur product production in preparation for the regulations that came in to force January 1.

**Rotterdam 3.5% fuel oil barges on a FOB basis finished the week to be assessed at $236.25/mt on June 19, up 16% at $203.50/mt from June 12.

**HSFO FOB Rotterdam barge cracks continued their strengthening, rising 42 cents on the week to be assessed at $5.829/b June 19.

**Offers in to ARA were heard thin, with a source noting that product was heading to other destinations such as the US and the Red Sea.

**The amount of HSFO heading from Europe (including the Baltic Sea) to the US jumped to 9.62 million barrels in May, from 2.18 million barrels in April, according to commodity data company Kpler on June 19. Some 2.34 million barrels made the same voyage in May 2019.

**Also according to Kpler, 2.74 million barrels of HSFO traveled from Europe to Saudi Arabia in May, marking a decline of 1 million barrels from May 2019. The decline has been attributed by sources to European HSFO finding support on more limited availability post IMO 2020.

Feedstocks

** European VGO markets continue to see a division on the strength of the product, with some sources insisting the increase in gasoline demand from countries lifting lockdown measures, is bullish for the product. However opposing sources have stressed weak refinery margins and US netbacks, alongside Brent in backwardation as a stronger negative force.

** LSSR continued to find the majority of its demand from the bunker pool, as sources reported limited demand as a refinery feedstock