Singapore’s low sulfur fuel oil arrivals from the West are expected to witness a sizeable drop for a second straight month in March, as arbitrage economics remain mostly unviable amid the ongoing geopolitical tensions in the Red Sea.

The world’s largest bunkering hub of Singapore is now expected to receive around 1.4-1.7 million mt LSFO from the West in March, down from about 2 million mt scheduled for in February, trade sources said in the week beginning Feb. 26.

Despite the lesser arbitrage arrivals from Europe and Brazil in coming weeks, the Asian LSFO market is expected to stay rangebound in the near term as recent shipments from Kuwait’s Al-Zour refinery and ADNOC’s Ruwais refinery keep the region well supplied amid leaner bunkering demand since the Lunar New Year holidays, trade sources said.

“I think the market will get a bit tighter from end-February onwards as March should see lesser arrivals… But the overall market should still be balanced somewhat,” a Singapore-based trader said.

But a recent force majeure and cancellations of the February-loading Dar blend crude cargo would likely tighten some of the regional LSFO supplies as the South Sudanese crude grade is used in the production of the IMO 2020-compliant marine fuel, sources said.

“Sudan’s exports of heavy-sweet crudes used in the production of VLSFO have dropped this month due to a major pipeline leak linking production fields to the export terminal on the Red Sea. This can significantly impact VLSFO supplies in the Middle East and Asia and operations at topping plants in the UAE and Malaysia,” said Roslan Khasawneh, senior oil analyst at Kpler.

Meanwhile, offers for March-loading term ex-wharf LSFO barrels in Singapore ranged around $12-$15/mt premiums, compared with most of February’s ex-wharf cargoes which were previously concluded around $8.50-$18/mt premiums, S&P Global reported earlier. In late January, term ex-wharf barrels for February’s supply were even offered around $20-$40/mt premiums at its peak, owing to robust downstream demand, traders said.

Several ports in Asia, including the bunkering hub of Singapore, saw an uptick in downstream demand in recent weeks as ships, trying to avoid the Suez Canal conflict zones, have been taking longer routes around the Cape of Good Hope with some vessels sailing at relatively higher speeds to meet schedules, sources said.

“Speed among container ships has increased since the onset of the Red Sea disruption… Ship fuel consumption also increases with rapid sailing speed and longer distances. For a large container ship, a 1% speed increase typically results in 2.2% rise in fuel consumption,” the United Nations Conference on Trade and Development (UNCTAD) said in a February report.

West-East arbitrage window remains shut

Despite expectations for adequate near-term supplies in Europe, the West-East LSFO arbitrage window currently remains shut, partly as several shipping companies continue to avoid the Suez Canal, market sources said.

Majority of ship owners are still avoiding transiting through the Red Sea, a shipbroker said. “We will need to see no new attacks for a month or so, before the owners start changing their minds because the risk persists,” he added.

The spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, which has stayed rangebound in the last two weeks, was assessed at $49/mt Feb. 28, S&P Global data showed. The spread has averaged $47.83/mt so far in February, compared with an average of $45.72/mt in January, the data showed.

The Singapore marine fuel 0.5%S cargo’s cash premium over the Mean of Platts Singapore marine fuel 0.5%S assessment, which has dropped nearly 23% since January-end, was assessed at $5.92/mt Feb. 28, down from $6.13/mt in the preceding session, S&P Global data showed.

Source: Platts