SINGAPORE (Reuters) - A persistent crunch in supply of fuel oil to Asia driven by reduced shipments from exporters like Iran and Venezuela has pushed a key fuel’s cash premium to Singapore prices to a three-year peak, with levels expected to stay high for another month.
The Asian cash premium for the 380-centistoke (cst) grade of fuel oil, typically used to power ships, hit $5.28 a ton on Friday, its highest since mid-2015.
“Lower volumes from Venezuela and Iran are certainly contributing toward a tighter fuel oil balance,” said Joe Willis, Senior Research Analyst at consulting firm Wood Mackenzie.
He said Venezuela was this year expected to export 40,000 barrels per day (bpd) of fuel oil, down from 100,000 bpd in 2017, with the nation engulfed in economic crisis.
Between January and June this year, Singapore imported a monthly average of 475,000 tonnes of fuel oil from South America including Brazil, versus 810,000 tonnes in the same period in 2017, data from the World Flows Explorer on Thomson Reuters Eikon showed.
For graphic on fuel oil 380-cst cash premium click reut.rs/2tLr2B5
Meanwhile, Iran’s oil exports are being hit as the United States re-imposes sanctions on the Middle Eastern nation over its disputed nuclear program.
Alan Gelder, vice president of refining at Wood Mackenzie, noted that sanctions on the country were coming when oil markets were already tightening, unlike the last time they were introduced.
Elsewhere, fuel oil exports from Northwestern Europe to Singapore have also dropped, down to an average monthly total of 1.074 million tonnes in the first six month of 2018 versus 1.308 million tonnes at the same time in 2017, the data showed.
“There are ... a number of refinery upgrading projects in Russia, Europe and Asia resulting in lower fuel oil production,” said Willis at Wood McKenzie.
Russia is still carrying out modernization work on its biggest refineries that has been going on for years.
Traders said robust 380-cst premiums would continue for another month.
Strong fundamentals have already boosted margins on the 180-cst grade of fuel oil, often used in power generation.
The discount on 180-cst to Dubai crude had hit $1.57 a barrel as of June 28, the narrowest discount seen since the middle of last September.
Reporting by Seng Li Peng and Jessica Jaganathan; Additional reporting by Roslan Khasawneh; Editing by Joseph Radford