The narrower 10 ppm gasoil-delivered marine fuel 0.5%S spread in Singapore has prompted more shipowners to buy low sulfur marine gasoil in place of low sulfur marine fuel in second-half September, bunker suppliers in Singapore said.

"It's a fairly uncommon occurrence, but both products are almost at parity now, so some shipowners prefer LSMGO with its lower sulfur content [0.1% sulfur]," a Singapore-based bunker supplier said.

Most low sulfur fuel oil bunker deals in Singapore and North Asia are still done on a MOPS 10 ppm gasoil basis.

Since Sept. 16, Platts had assessed the spread between Mean of Platts Singapore 10 ppm gasoil assessments and the Singapore delivered marine fuel 0.5% bunker assessments at a single-digit, reversing the typical trend of a double-digit spread that had been the case for more than four months prior.

The spread has since contracted to a five-month low of 84 cents/mt on Sept. 28, but on Sept. 29, it had widened to $2.94/mt, Platts data showed.

Asian gasoil values have been lackluster as fundamentals have been plagued by weaker demand brought about by localized containment lockdowns, amid a resurgence of the COVID-19 infections in some locations.

An unviable East-West arbitrage due to a still-strong gasoil Exchange of Futures for Swaps spread was adding pressure to already high inventories, traders said.

In terms of the number of inquiries for marine fuel seen in the week ending Oct. 2, suppliers in Singapore surveyed by S&P Global Platts reported that sales were stable to slightly lower, highlighting the market volatility.

"I've been getting a similar number of inquiries so far, but the bids [for delivered low sulfur fuel oil] are not that high, and there's some distance from the offers. Some shipowners are holding off during this period and waiting for the market [spread] to cool, as long as this continues, we'll probably see more sales of LSMGO," a second Singapore supplier said.

Singapore LSFO bunker sales in August, which overtook LSMGO sales in October 2019 ahead of the implementation of the International Maritime Organization's 2020 mandate, stood at 2.84 million mt, approximately 2% lower from July, according to data by the Maritime and Port Authority of Singapore. LSMGO sales in August stood at 273,200 mt, an 11.14% rise on the month.

NARROW LSFO-GASOIL SPREAD FORCES ASIAN REFINERS TO SHELVE IMPORT PLANS

The narrower spread between MOPS 10 ppm gasoil assessments and the Singapore Marine Fuel 0.5% assessments has also meant that refiners, who had previously found it cheaper to import LSFO rather than produce it due to the weak crack spread, may likely cease this strategy.

"The [LSFO] purchase price [relative to MOPS 10 ppm gasoil] has become unviable, so we're likely to shelve any plans to import cargo from Singapore," a source close to South Korea's SK Energy said.

Previously, fellow refiner Hyundai Oilbank imported approximately three Aframaxes of LSFO from Singapore to meet its domestic term contract commitments, with the latest shipment due to arrive in South Korea in the first week of October, although a company source indicated the likelihood that there may not be a fourth shipment.

Most Asian refiners have reduced the output of low sulfur fuel oil due to low margins, producing enough to meet domestic demand, and in some cases, scaling back export sales via tender, Platts reported previously.

The Asian LSFO crack spread, measured as the difference between front month Singapore marine fuel 0.5%S swap and the Dubai crude oil swap, has averaged $6.90/b in September, lower than the August average of $7.78/b, and down from the $29.77/b on Jan. 2, when the IMO 2020 mandate on cleaner marine fuel came into effect, Platts data showed.