Asian LSFO market faces headwinds in 2024 amid supply surplus and softening demand: S&P GCI

New Delhi [India], January 19 : The Asian low-sulfur fuel oil (LSFO) market is anticipated to experience subdued conditions throughout 2024 due to a potential build in regional stock levels and slower growth in downstream bunker demand.
Analysts and trade sources suggest that new capacity additions, particularly from Nigeria's upcoming Dangote refinery, may contribute to surplus fuel oil availability in the region, according to S&P Global Commodity Commodity Insights (GCI).
The LSFO market in Asia is expected to remain lacklustre in 2024, with analysts predicting a slight build in stock levels.
The global economic uncertainties and the growing consumption of cheaper high-sulfur grades by new scrubber-fitted vessels are cited as factors contributing to the subdued demand.
While Kuwait's Al-Zour mega-refinery might have a lesser impact on the Asian LSFO market, the startup phase of Nigeria's Dangote refinery is anticipated to lead to surplus fuel oil availability. The industry anticipates a gradual build in 2024, affecting LSFO dynamics.
The macroeconomic concerns on a global scale, coupled with the utilisation of high sulphur grades by vessels fitted with scrubbers, are expected to influence LSFO demand.
Despite a potentially lacklustre year, analysts note that Asia's petroleum consumption is less affected compared to Western markets.
Sales of the International Maritime Organisation (IMO)-compliant LSFO grade at Singapore, the world's largest bunker hub, rose 3.6 per cent in 2023 to 31.219 million mt.
However, the share of overall bunker sales shrank to 60.2 per cent from 62.9 per cent in 2022, reflecting changing dynamics in the LSFO market.
Singapore's traders foresee continued pressure on downstream margins due to buoyed LSFO stocks, leading to intense competition in 2024. Suppliers with integrated supply chains are expected to have a competitive edge over independent suppliers in such a challenging market environment.
The LSFO cash differential for physical cargoes against the Mean of Platts Singapore strip has seen a notable decrease, averaging USD 3.22/mt in 2024 through January 17.
This is in contrast to USD 10.37/mt across 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.
However, concerns remain regarding the LSFO outflows from Al-Zour in 2024, making it a major swing factor for the LSFO market in H1 2024. The LSFO market is facing competition from high-sulfur fuel oil (HSFO), which is 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 per cent sulphur 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.
This indicates the economic dynamics between LSFO and HSFO, with HSFO gaining more prominence.
While challenges loom over the LSFO market in Asia, market participants are closely monitoring developments, including the impact of Al-Zour refinery exports, the startup phase of Dangote refinery, and the 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.