Front-month swap crack spreads for Singapore 180 CST high sulfur fuel oil touched 17-month highs Thursday as weaker crude swap prices and expectations of a regional supply crunch for prompt cargoes fueled bullish sentiment on paper.
The front-month December FOB Singapore 180 CST HSFO crack swap against the Brent Singapore swap was assessed at minus $5.811/b Thursday, the highest since being assessed at minus $3.754/b on May 29, 2015, S&P Global Platts data showed.
Traders cited multiple reasons for the strength in crack swaps, most notably a sharp decline in international crude price levels after a record build in US crude inventories for the latest reporting period.
The front-month December Brent Singapore Swap was assessed at $47.85/b Thursday, down 5.62% from $50.70/b on Monday, when the December FOB Singapore 180 CST HSFO/Brent Singapore crack swap touched a nine-month high of minus $2.315/b.
The December Dubai swap fell to $44.02/b Thursday, down 6.34% from $47/b on Monday.
US crude inventories rose by a record 14.42 million barrels in the week ended October 28, US Energy Information Administration data showed, throwing expectations for a modest build off the rails and reinforcing fears that the global overhang of crude was far from easing.
The front-month FOB Singapore 180 CST HSFO crack against front-month Dubai swap showed similar strength, rising to minus $1.981/b Thursday. The crack spread was last assessed higher on May 28, 2015, at minus $1.442/b.
As of 0300 GMT Friday, market sources were pegging the FOB 180 CST HSFO/Brent Singapore crack swap at around minus $5.46/b and FOB 180 CST HSFO/Dubai crack swap at around minus $1.63/b, citing firmer sentiment in the market since Thursday.
Crack spreads for December 380 CST HSFO swaps followed suit, with the front-month FOB Singapore 380 CST HSFO/Brent Singapore crack swap rising to minus $7.063/b Thursday, its highest since it was minus $5.754/b on May 29, 2015.
The front-month FOB Singapore 380 CST HSFO/Dubai crack swap trailed the strength in the fuel oil swaps complex with a multi-month high of minus $3.233/b Thursday, having last touched minus $2.781/b on January 25.
Recent consolidation in winter power generation demand, especially as some refineries go into turnaround, may be putting a floor under fuel oil prices, market sources said.
Prices might also be responding to the perception of a shortage in blendstock, along with some prompt supply volume being delayed to December, sources said.