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High supplies exacerbate ship fuel prospects in the third quarter

Analysts and commercial sources told Reuters that the global supply of fuel oil, used by ships and power plants, is expected to grow in the third quarter, which negatively affects the marine fuel market, as the demand for marine freight remains weak.

It is estimated that supplies will rise in the third quarter, by 620 thousand barrels per day, compared to the second quarter, as China and Brazil are boosting production, according to Energy Aspects Consulting.
This comes at a time when stocks at major refueling centers have reached an all-time high, negatively affecting ship fuel prices and refining margins, and dashing hopes in a year that returns profitability to low-sulfur fuel vendors, which meets new emissions regulations Developed by the International Maritime Organization.

“We have 9-10 million tons (of fuel oil stocks) at the beginning of the year, it was supposed to be discharged by the beginning of the second quarter, but we see 13 million tons now, and it increases every month,” said a senior fuel oil dealer, who asked not to be identified.

Inventories in northwestern Europe and the United Arab Emirates hit record highs in June, while stocks at the world’s largest ship refueling port, Singapore, rose to their highest levels in more than three years.

Trade sources and Refinitiv data stated that the standard supplies negatively affected the immediate discount of low-sulfur fuel oil deliveries, to reach record low levels at approximately $ 45 per ton, below the standard prices for gas oil, and reduced the profits of Asian refining companies by approximately 80% from their record levels. The rise at the beginning of the year, to $ 10.25 a barrel, yesterday, Thursday.
Signs of weakening fuel demand for ships also appear in Singapore – the world’s largest ship refueling center – by a large margin, and in the Fujairah center in the Emirates.

“Until recently, ship fuel sales at major refueling centers were supported by seizing opportunities to rebuild inventory, but sales volumes have been affected since then by the fact that global trade has slowed,” said Aspects.

The prospects for demand also appear weak, according to a number of dealers in supplying ships with fuel in Singapore.

Energy Aspects said: “It is highly unlikely that there will be a significant recovery in demand for bunker fuel, before the end of the summer.”

The International Monetary Fund predicts a deeper global recession, as the Corona pandemic causes widespread and deep damage to economic activity, than was initially thought.

“The IMF forecast – if it turns out to be correct – tells us that the current levels of demand decline are likely to continue for a while,” said Alan Murphy, of C-Intelligence Consulting, in a note.