Lower Chinese export quotas: Impact on LSFO’s Asian market

China's lower export quotas for LSFO led to an increase in imports from Singapore, stabilizing the Asian market despite increased supply from the West.

Share:

The low sulfur fuel oil (LSFO) market in Asia is experiencing fluctuating dynamics due to adjustments to China’s export quotas. Indeed, the third wave of export quotas for 2024 introduces lower-than-expected volumes, which could put further pressure on Chinese suppliers.
This context is boosting imports from Singapore, the nerve center of the global LSFO trade.
Exports of Chinese marine fuel are now capped at 1 million metric tons for LSFO, a significant drop on the initial volumes for 2023 of 14 million tons.
This reduction has a direct impact on the market, as Chinese domestic demand continues to grow.
As a result, imports, notably from Singapore, are increasing to compensate for this deficit.

Pressure on Singaporean imports

Singapore, an essential hub for the supply of marine fuels, plays a strategic role in this new balance.
Although Western arbitrage flows to Singapore are expected to bolster stocks, Chinese demand remains a major factor.
According to Singapore-based traders, the fundamentals of the Asian LSFO market are set to hold, despite increased short-term price pressure.
The short-term swap price spread for LSFO in Singapore (M1-M2) widened its backwardation by 61.4% in a single day, illustrating the market’s growing volatility.
This context is partly fuelled by rising premiums on physical marine fuel cargoes.
Other market observers believe that this situation is exacerbated by recent supply reductions from other regions, such as Nigeria, where disruptions have been observed.

Impact on refining margins

Refining margins for LSFO in Asia continue to fluctuate according to Chinese export quota announcements and the availability of products on the market.
The Al Zour refinery in Kuwait saw its production increase after the summer period, but maintenance plans scheduled for the fourth quarter of 2024 should limit export volumes.
On the other hand, falling demand for power generation in the Middle East points to an increase in LSFO exports to Asia.
The premium on Singaporean cargoes peaked at $17.45/metric ton, according to recent data from S&P Global Commodity Insights, marking a significant increase on previous days.
Despite these increases, traders anticipate a price readjustment from October onwards, due to expected arbitrage volumes from the West.

Implications for Chinese suppliers

Reduced export quotas put Chinese suppliers in a complex position.
With only 1 million tonnes allocated for LSFO, China’s exports are limited, while domestic demand continues unabated.
The main players on the Chinese market, including Sinopec, PetroChina and CNOOC, are sharing volumes well below forecasts, which could force these companies to review their supply strategies.
Traders estimate that monthly demand from China could represent between 400,000 and 500,000 tonnes imported from Singapore.
This situation is also leading to an intensification of physical purchases on spot markets.
PetroChina, for example, recently purchased 420,000 tonnes of 0.5% sulfur marine fuel oil during Platts’ “Market on Close” evaluation process, representing a significant share of the month’s traded volumes.

Outlook for the fourth quarter

Despite the current disruptions, the Asian LSFO market should benefit from the continued arrival of cargoes from the West.
Larger volumes are expected from mid-October onwards, which could moderate any significant price rises.
However, the balance between sustained Chinese demand and increased Western arbitrage arrivals will be a key factor in the months ahead.
Traders remain attentive to the evolution of Chinese export quotas, but also to the capacity of the region’s refineries to meet demand, which remains buoyant.
With market conditions evolving rapidly, volatility looks set to become a permanent feature of the Asian LSFO market, particularly influenced by China’s quota policies and the evolution of global trade flows.

The Canadian government is now awaiting a concrete private-sector proposal to develop a new oil pipeline connecting Alberta to the Pacific coast, following recent legislation intended to expedite energy projects.
Petrobras is exploring various strategies for its Polo Bahia oil hub, including potentially selling it, as current profitability is challenged by oil prices around $65 per barrel.
Brazilian producer Azevedo & Travassos will issue new shares to buy Petro-Victory and its forty-nine concessions, consolidating its onshore presence while taking on net debt of about USD39.5mn.
Major oil producers accelerate their return to the market, raising their August quotas more sharply than initially expected, prompting questions about future market balances.
Lindsey refinery could halt operations within three weeks due to limited crude oil reserves, according to a recent analysis by energy consultancy Wood Mackenzie, highlighting an immediate slowdown in production.
The flow of crude between the Hamada field and the Zawiya refinery has resumed after emergency repairs, illustrating the mounting pressure on Libya’s ageing pipeline network that threatens the stability of domestic supply.
Libreville is intensifying the promotion of deep-water blocks, still seventy-two % unexplored, to offset the two hundred thousand barrels-per-day production drop recorded last year, according to GlobalData.
The African Export-Import Bank extends the Nigerian oil company’s facility, providing room to accelerate drilling and modernisation by 2029 as international lenders scale back hydrocarbon exposure.
Petronas begins a three-well exploratory drilling campaign offshore Suriname, deploying a Noble rig after securing an environmental permit and closely collaborating with state-owned company Staatsolie.
Swiss commodities trader Glencore has initiated discussions with the British government regarding its supply contract with the Lindsey refinery, placed under insolvency this week, threatening hundreds of jobs and the UK's energy security.
Facing an under-equipped downstream sector, Mauritania partners with Sonatrach to create a joint venture aiming to structure petroleum products distribution and reduce import dependency, without yet disclosing specific investments.
Oil companies may reduce their exploration and production budgets in 2025, driven by geopolitical tensions and financial caution, according to a new report by U.S. banking group JP Morgan.
Commercial oil inventories in the United States rose unexpectedly last week, mainly driven by a sharp decline in exports and a significant increase in imports, according to the US Energy Information Administration.
TotalEnergies acquires a 25% stake in Block 53 offshore Suriname, joining APA and Petronas after an agreement with Moeve, thereby consolidating its expansion strategy in the region.
British company Prax Group has filed for insolvency, putting hundreds of jobs at its Lindsey oil site at risk, according to Sky News.
Orlen announces the definitive halt of its Russian oil purchases for the Czech Republic, marking the end of deliveries by Rosneft following the contract expiry, amid evolving logistics and diversification of regional supply sources.
Equinor and Shell launch Adura, a new joint venture consolidating their main offshore assets in the United Kingdom, aiming to secure energy supply with an expected production of over 140,000 barrels of oil equivalent per day.
Equinor announces a new oil discovery estimated at between 9 and 15 mn barrels at the Johan Castberg field in the Barents Sea, strengthening the reserve potential in Norway's northern region.
Sierra Leone relaunches an ambitious offshore exploration campaign, using a 3D seismic survey to evaluate up to 60 potential oil blocks before opening a new licensing round as early as next October.
Faced with recurrent shortages, Zambia is reorganising its fuel supply chain, notably issuing licences for operating new tanker trucks and service stations to enhance national energy security and reduce external dependence.