The 380 CST high sulfur fuel oil cargo spread between Singapore and Rotterdam, or the East/West spread, has been widening as Asian prices raced ahead of Europe on strong demand from power plants and for straight run fuel oil, market sources said June 29.

The spread between Singapore 380 CST HSFO and FOB Rotterdam barge 3.5% sulfur stood at around $10/mt during the Asian afternoon on June 29, widening from $7.90/mt at the Asian close on June 26, a fuel oil trader, based in Singapore said.

Meanwhile, the spread had shrank to $4.40/mt at the Asian close on June 23, an all-time low since Platts started assessing FOB Rotterdam barge 3.5% sulfur assessments at the Asian close in October 2014, Platts data showed, because of the rise in HSFO values in Europe, while Asian prices were relatively steady.

As Middle Eastern countries, such as Saudi Arabia, have been buying 380 CST HSFO to meet domestic demand for power plants during the region's hot summer months, Asian HSFO market has been strong since early June.

At the same time, the Asian HSFO market has been experiencing strong demand for straight run fuel oil from refineries, following Saudi Arabia's decision to raise its official selling prices for July-loading crude oil. Saudi Arabia's move made straight run fuel oil more competitive than crude oil as refinery feedstock, Asian refinery sources said.

On the other hand, supply of HSFO remained limited due to refiners' run cuts across the region, market sources said.

Also, "Middle Eastern countries are cutting heavy crude oil production, which is also reducing fuel oil production," a fuel oil trader based in Singapore said.

Reflecting the strength of Asian HSFO, the cash differential of Singapore 380 CST HSFO rose to minus $3.17/mt on June 26, the highest since April 6, Platts data showed.

HSFO SUPPLY IN EUROPE REMAINS TIGHT

Despite the widening East/West spread, the tightness in European HSFO supply has not eased amid a reduced number of cargoes from the Baltic Region.

"In general most of the HSFO isn't staying locally, there is less overall coming out and most of it gets sent to USGC," one market source said.

HSFO has found demand as a coker feed in the US Gulf Coast, with demand from ships with scrubbers yet to be seen.

The source added that the backwardation on the HSFO forward curve was incentivizing the shorter route to the USGC over sending the product east.

The amount of HSFO heading from Europe, including the Baltic Sea, to the US jumped to 9.5 million barrels in May, from 2.18 million barrels in April, according to trade flow and inventory tracker, Kpler, on June 23. This was a fourfold increase from the 2.34 million barrels making the same voyage in May 2019.