The Asian low-sulfur fuel oil (LSFO) market is expected to face a sluggish year in 2024, with analysts projecting subdued conditions. This outlook is attributed to a potential increase in regional stock levels and a slower growth in downstream bunker demand. Notably, new capacity additions, especially from Nigeria’s upcoming Dangote refinery, may contribute to surplus fuel oil availability in the region, according to insights from S&P Global Commodity Insights (GCI).
Analysts predict a slight build in LSFO stock levels throughout the year, driven by factors such as global economic uncertainties and the growing use of cheaper high-sulfur grades by vessels fitted with scrubbers. While Kuwait’s Al-Zour mega-refinery might have a limited impact, the startup phase of Nigeria’s Dangote refinery is anticipated to lead to surplus fuel oil availability, affecting LSFO dynamics in 2024.
Despite these challenges, Asia’s petroleum consumption is expected to be less affected compared to Western markets. Sales of the International Maritime Organisation (IMO)-compliant LSFO grade at Singapore, the world’s largest bunker hub, increased by 3.6% in 2023. However, the share of overall bunker sales shrank slightly, reflecting changing dynamics in the LSFO market.
Singapore’s traders foresee continued pressure on downstream margins due to increased LSFO stocks, leading to intense competition in 2024. Suppliers with integrated supply chains are expected to have a competitive edge over independent suppliers in this challenging market environment.
The LSFO cash differential for physical cargoes against the Mean of Platts Singapore strip has notably decreased, averaging USD 3.22/mt in 2024 through January 17. This contrasts with USD 10.37/mt in 2023 and USD 26.08/mt in 2022, indicating challenging market conditions. Incremental supplies from Kuwait’s Al-Zour refinery impacted Asian LSFO fundamentals in the first three quarters of 2023, but concerns remain regarding LSFO outflows from Al-Zour in 2024.
The LSFO market faces competition from high-sulfur fuel oil (HSFO), expected to witness growth in bunkers. The increasing use of scrubbers in new ships is driving more demand towards the HSFO pool, impacting the growth trajectory of LSFO. The spread between Singapore 0.5% sulfur marine fuel oil and the benchmark HSFO cargo prices, known as the Hi-5 spread, was assessed at USD 141.86/mt on January 17, indicating the economic dynamics between LSFO and HSFO.
While challenges persist, market participants are closely monitoring developments, including the impact of Al-Zour refinery exports, the startup phase of Dangote refinery, and evolving trends in LSFO and HSFO consumption patterns. The market’s adaptability to changing dynamics will be crucial in navigating through the uncertainties in 2024.
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