Asian fuel oil rally pauses as Singapore inventories rebound, with geopolitical risks supporting discounts

⑴ On Thursday, the Asian fuel oil market eased after several days of gains. The near-term price spread structures for both ultra-low sulfur fuel oil and high sulfur fuel oil narrowed compared to the previous day, but spot premiums were still supported. The Singapore bunker fuel delivery premium rebounded again this week to above USD 100 per ton, returning to late June levels.⑵ The ongoing tension in the Middle East continues to escalate, reigniting supply uncertainty. This may limit refinery operating rates or prompt refineries to increase production of more profitable clean refined products, thereby suppressing fuel oil output and providing underlying price support.⑶ The price spread between ultra-low sulfur and high sulfur fuel oil narrowed to about USD 142 per ton compared to the previous day. Both fuel oil crack spreads retreated under profit-taking pressure; the ultra-low sulfur crack spread still maintained a premium of about USD 21 per barrel, while the high sulfur crack spread narrowed its discount to about USD 1 per barrel.⑷ According to Singapore Enterprise Development Board data, as of the week ending July 22, residual fuel oil inventories rose about 2% week-on-week to 19.46 million barrels. The rebound in inventories exerts some pressure on market sentiment, but ongoing geopolitical disruptions continue to provide support for risk premiums.⑸ No spot trades were recorded for any of the three mainstream products in window trading, reflecting a divergence between buyers and sellers at current price levels. Market participants remain cautious, with close attention to the development of the Middle East situation and changes in refinery operating rates for their actual impact on the fuel oil supply and demand landscape.