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Singapore fuel oil margins near record as crude tumbles, supplies shrink

By Roslan Khasawneh

SINGAPORE (Reuters) - Asian fuel oil refining margins climbed to a near record high on Friday, boosted by falling crude oil prices and tightening supplies of the fuel amid refinery upgrades and looming U.S. sanctions on Iranian oil exports next month.

"Cracks have strengthened recently mostly due to weaker crude prices which are down by almost $10 per barrel since the start of the month," said Nevyn Nah, an analyst at consulting firm Energy Aspects.

Weaker crude oil prices tend to improve margins because of the lower cost for raw materials.

Supplies of fuel oil, the residue oil left after initial crude processing in a refinery, have constricted this year. The oil product is mainly used to power large ships and for electricity generation.

Refineries have cut their fuel oil output after upgrades ahead of stricter emissions regulations for ship fuel in 2020 and as exports of Iranian fuel oil, a major producer and exporter of the residual fuel, have dropped before the U.S. sanctions start on Nov. 4.

"Secondary units upgrades in Europe and South Korea, loss of low-viscosity Iranian supplies which is vital for blending West of Suez material," have all contributed to the stronger fuel oil margins, said Nah.

Refinery disruptions from key producers such as Venezuela and Mexico have also tightened the availability of fuel oil.

The Singapore 180-centistoke (cst) fuel oil refining margin, or crack, for November was at $1.43 a barrel above Dubai crude oil during afternoon trade on Friday, data on Refinitiv Eikon showed.

The last time the front-month fuel oil crack was at a wider premium was in March 2003.

The more actively traded crack for barges of 380-cst fuel in Europe versus Brent crude has also soared.

"The barge crack yesterday shot up pretty sharply to about minus $5.75 a barrel," said a Singapore-based fuel oil broker.

The front-month 380-cst barge crack is now at its highest since September 2017, Refinitiv data showed.

Fuel oil typically trades at a discount to crude oil because it is a residual by-product.

Oil prices on Friday were heading for a third weekly loss amid growing concerns of oversupply amid a slump in global equities and trade.

From 2020, International Maritime Organization (IMO) rules will ban ships from using fuel oil with a sulphur content above 0.5 percent, compared with 3.5 percent now, unless they are equipped with so-called scrubbers to clean up sulphur emissions.

The new regulations have forced the oil refining and shipping industries to prepare for the shift by making large investments to comply with the new standards.

(Reporting by Roslan Khasawneh)