Asia's high-sulfur fuel oil margin swung from a premium to a discount this week as hopes of US-Iran de-escalation grew and more oil left the Gulf. Analysts at Goldman Sachs and JPMorgan, meanwhile, see the global oil market moving back toward oversupply.
Asia's fuel oil refining margins and benchmark prices slumped this week after the outcome of the U.S. midterms boosted hopes of de-escalation in the Middle East, allowing more oil products to move out of the Strait of Hormuz.
The refining margin for high-sulfur fuel oil (HSFO) in Asia plunged to a discount of $2.29 per barrel on Thursday, compared with a premium of $5.34 a barrel on Monday, Reuters reports, citing LSEG data.
Gulf exports lift fuel oil supply to Asia
Supply of fuel oil from the Middle East to Asia has improved, which also weighs on benchmarks and margins. Fuel exports from the UAE en route to Singapore and Malaysia surged in October to about 729,000 metric tons, according to Kpler data cited by Reuters.
However, traders say high shipping costs are reducing European fuel oil supply to Asia.
Dubai curve flips into contango
The Dubai benchmark curve is also showing signs that rising crude oil flows from the Middle East are exceeding demand for the first time since early July, when the three-week U.S.-Iran ceasefire let millions of barrels leave the Strait of Hormuz unhindered. Physical flows have risen gradually for the past two months as Gulf producers accelerated shuttle-shipping through Hormuz, using ship-to-ship transfers in the Gulf of Oman.
As a result, the November Dubai contract traded at a discount of about $2 per barrel to December at the start of this week, traders and brokers told Bloomberg on Tuesday. This price curve, known as contango, is the first sign since July that current supply is abundant in the Middle East.
Analysts see the oil market returning to surplus
A second Investing.com report says Goldman Sachs and JPMorgan analysts see the global market moving back toward oversupply. JPMorgan estimates a surplus of 1.1 million barrels per day in September, widening to 1.4 million bpd in October. Goldman, by contrast, saw the market as balanced in both months and did not detect any global oil inventory declines over the last two months.
The report adds that the glut call may be premature, because futures and physical prices are still substantially higher than at the start of the year. The war premium remains alive, though somewhat weakened after the Democrats' victory in the U.S. midterm elections.
The International Energy Agency, in its latest monthly Oil Market Report, estimated oil demand destruction this year at 2.6 million barrels daily.
Sources: Investing.com, Investing.com
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