Global marine fuel 0.5%S prices in January reached pre-pandemic levels on a combination of global supply tightness in all major regions.

Despite rising prices, retail bunker demand has continued to lag behind normal levels.

Asia

The Singapore marine fuel market has been seeing upward momentum amid tight supply since late January, and the strength is expected to continue at least until the end of February, market sources said.

The prompt Singapore February-March Marine Fuel 0.5%S swaps time spread surged to a near one-year high of $4.80/mt Jan. 29 as sulfur cutter stocks supply tightened, S&P Global Platts data showed. "The market is short of sulfur cutters," said a Singapore-based fuel oil trader. "I don't see much of 0.2%, 0.3% [sulfur] type of cargo," said a second fuel oil trader in Singapore.

Meanwhile, Singapore is expected to receive about 2.5 million mt of low sulfur fuel oil from the West in February, up from 2 million mt for January, traders said, while cargo arrivals will increase in the second half of the month, market sources said.

Demand for marine fuel was unlikely to be robust because of the upcoming Lunar New Year holidays when trading activity generally dials down a notch. Incremental demand for low sulfur fuel oil as a burning fuel also was likely to taper off going into February compared with volumes drawn in by North Asian utility markets in January.

In the Middle Eastern port of Fujairah, traders have lamented an overall lack of demand for the most part of January, even as traders pin their hopes on some of Qatar's bunkering demand to return to Fujairah sooner rather than later.

Europe

In Europe, the 0.5%S marine fuel market found support into the latter end of January with a pull eastward amid tightness in the region. This demand pull is expected to ease into February, as the supply outlook in Europe remains uncertain.

Supply in Europe was heard to be mixed, while some sources have noted tightness, others highlight there are volumes available, but largely held in storage.

"Tanks aren't empty, but you need to pay up," one source said, attributing strength to the pull eastward and more limited refinery runs in Europe amid the coronavirus pandemic.

“Tight supply is putting a solid floor on levels,” another source said, “and cargoes moving east squeezes supply even more.”

As a result, the 0.5%S marine fuel crack has remained the most supported transport fuel throughout January, while the marine transport sector remains the least affected from lockdown restrictions compared with land and air transport.

Very low sulfur fuel oil cracks hit 10-month highs in Europe in January, as Asian utility demand created a draw eastward. The 0.5%S FOB Rotterdam paper barge crack was assessed at $8.656/b Jan. 19, a level not seen since March 12, when it was assessed at $9.77/b.

Demand for European bunkering overall in January was poor, as bunker suppliers note that the first quarter of the year is generally slower, but appetite picked up toward the end of the month, bunker suppliers said.

US

Marine fuel 0.5%S prices in January continued to rise on both an outright basis and as a differential to crude, with supply limitations leading the way in market fundamentals.

USGC marine fuel 0.5%S had an average price of $412.50/mt in January, up from around $375.65/mt in December and its highest since February 2020, when it averaged around $421.88/mt, S&P Global Platts data showed.

The USGC marine fuel 0.5%S/Brent crack spread topped out in January at $10.41/b Jan. 20 assuming a conversion rate of 6.35 from metric tons to barrels. It marked the strongest the crack had been since $10.55/b March 3, at $10.55/b.

While the outright price of marine fuel 0.5%S has been aided by a slow, but steady, recovery in the underlying crude complex, multiple US sources said during the month that inventory remains limited for blending and trading.

One US trader said they had not seen any imports of marine fuel 0.5%S blending components from the Caribbean or Europe that entered the marine fuel market. Instead, much of the product ended up sold directly to refineries, which used the product as a feedstock.

Near the end of the month, some market participants said they believed the current value of marine fuel 0.5%S was reaching a point to where it would entice a flurry of imports of LSFO, LSVGO, and high sulfur diesel, given their competitive pricing.