You are here: Home » Reuters » News
Business Standard

Asia fuel oil margins to be supported through mid-year on strong demand

Reuters  |  SINGAPORE 

By Roslan Khasawneh

(Reuters) - Asian refining margins for are set to hold near their current strong levels through the summer as increased use of the fuel by utilities to power air conditioners for cooling and disruptions to trade flows shrink global supplies.

"Robust power generation demand in the (notably Saudi Arabia) should result in outflows from the region," said Iman Nasseri, of consultancy FGE's office.

While markets typically strengthen during the northern hemisphere summer months, four trade sources said have demonstrated additional strength this year by shrugging off sharp gains in prices, which in mid-May climbed to their highest since November 2014.

The trade sources declined to be identified as they are unauthorised to speak to the media.

"Fears over falling Iranian supply ... structural falls in global supply, and a strong seasonal demand uptick in the for power generation are combining to provide support," Vienna-based consultancy said in a research note last week.

in due to refinery outages and a lack of crude oil, and refinery upgrades in Russia, the Middle East, and have all contributed to tightening global supplies of the fuel, used to generate and power industrial boilers and ships.

With the in the Middle East shrinking this year and next due to increased oil-fired power plant expansions, the region is projected to become a by mid-2019, though only for a short period of time, Nasseri said.

Increasing Saudi Arabian power demand amid falling supply from there, the and underpin the big shift, he said.


The 180-centistoke to crude on Monday settled at $3.21 a barrel, with crude holding above $74 a barrel.

In November 2014, when crude was last at similar levels, the same or margin was at a discount wider than $6 a barrel.

Reflecting fuel oil's strength, the crack was the only one to post gains over the past few weeks, with ample supplies and rising crude prices weighing on other refined fuels, including gasoline and diesel.

"should weaken as we move through (second-half 2018) as seasonal demand support wanes and destocking pressures from a highly backwardated market ... compensate for growing tightness in the fundamental balance," JBC said.

While strength in subsides with the passing of peak utility demand, though, some analysts and traders see limited downside for fuel oil in the second half of the year.

In addition to tightening supplies, looming U.S. sanctions on from - a with exports of about 17 million tonnes in 2017 - could further limit fuel oil outflows, mainly to

Also, expectations of higher crude supplies in the second half of the year amid rising output from producers outside the Organization of the Petroleum Exporting Countries, including the and Russia, could weigh on crude prices, potentially lending support to

(Reporting by Roslan Khasawneh; Editing by Tom Hogue)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, June 12 2018. 15:05 IST