The Asian Marine fuel 0.5%S crack spread, the difference between front month Singapore Marine Fuel 0.5%S and Dubai crude swap, widened to a 10-month high of $12.97/b on Jan. 18 as Asia's low sulfur fuel oil was buoyed by demand from North Asia's power generation sector amid the petering of the crude price rally.

The crack spread, which was last higher on March 13, 2020 at $13.88/b, Platts data showed, has been on an uptrend since end-December 2020, coinciding with the surge in LNG prices amid low fuel inventories among utility companies in North Asia, leading to concurrent demand for competitively-priced LSFO.

Platts JKM surged to an all-time high of $32.50/MMBTu on Jan. 13 as power companies in Japan, China and South Korea scrambled to procure H1 February delivery cargoes amid a cold wave in the region, before falling to $9.63/MMBTu on Jan. 18.

Among those that had stepped up fuel oil procurement over late-December and January are Japan's Chugoku Electric and Kansai Electric, which had secured multiple coastal oil tankers for short term charter, concluded spot fuel oil deals and bought crude oil from abroad, as well as South Korea's East West Power, according to company officials and tender data.

South Korea, meanwhile, is estimated to have imported around 11 million barrels of fuel oil in fourth-quarter 2020, up 62.7% from 6.76 million barrels during the same period a year earlier and the shipments may reach around 12.2 million barrels in Q1 2021, up 38.2% from 8.83 million barrels imported a year ago, according to major South Korean electricity providers and refiners surveyed by Platts.

LOW SULFUR BUNKER DEMAND RECOVERY UNDERWAY

Despite the short-term bullish demand, fuel oil traders, however, expect the rally in the Asian marine fuel 0.5%S to be short-lived.

"It's mainly because of the cold snap in the North [Asia], which shouldn't last very long. If you look at the [Singapore] bunker market thus far, demand has not been that good, although its been improving in the last few days, and that will be the long-term determinant of the [crack] spread," a trader based in Singapore said.

Spot trading in Singapore's marine fuel 0.5%S bunker market has started to see an uptick recently as the flat price has trended lower with the weakening crude marker, as Platts had assessed the Singapore-delivered marine fuel 0.5%S bunker at $442.50/mt on Jan. 18, inching lower from the near 11-month high of $451/mt on Jan. 13.

In addition, the rise in the value of Marine Fuel 0.5%S swaps has outpaced the rise in crude swaps, as the bullish effects of Saudi Arabia's 1 million b/d crude production cut has been tempered by the resurgence in the coronavirus globally.

The escalation of the pandemic in the western hemisphere notwithstanding, the market is now beset by fresh outbreaks in Asia, including countries such as Japan, South Korea and China.

The front month Brent swap has risen 3% thus far in January to stand at $54.60/b at the Asian close on Jan. 18, with the front month Dubai swap also rising 3.14% to close at $53.88/b.