News summary
The weakening of international crude oil dragged down the fuel oil market. High-sulfur fuel oil performed strongly. Supported by declining demand and inventories in Singapore, the price difference between low-sulfur fuel oil narrowed, and the weak pattern continued. OPEC's production reduction policy and non-OPEC supply growth have little impact. The resumption of production by Russian refineries may affect the valuation of high-sulfur fuel oils.
Newsletter text
This week's weakening of the international crude oil market has dragged down fuel oil prices. Recently, international oil prices have continued to be sluggish, and WTI crude oil futures prices have dropped by 2% throughout the week.viejasbingo.16%。Due to the limited impact of the Palestinian-Israeli conflict and tensions between Russia and Ukraine on oil supplies, geopolitics has not become the driving force behind the rise in oil prices. Market focus turned to the upcoming OPEC meeting in early June, and it is generally expected that the production reduction policy will be extended until the end of the year. However, considering non-OPEC supply growth and weak demand growth, production cuts will have limited boost to oil prices. At the same time, the U.S. inflation rate is expected to decline, but the Federal Reserve is cautious about cutting interest rates, and the prospects for interest rate cuts remain unclear. Overall, the international crude oil market remains weak and has a certain drag on fuel oil prices.
[The fundamentals of high-sulfur fuel oils are relatively strong] Despite the decline in international oil prices, the fundamentals of high-sulfur fuel oils are still strong. Stable market demand in Singapore has driven up the premium of high-sulfur fuel oil. Fujairah stocks fell to a two-month low, while heavy distillate stocks also fell to a six-week low due to 1.1 million tons exported to Saudi Arabia. China's imports of high-sulfur fuel oil increased by 57.4% year-on-year in April, hitting a new high since January 2019. On the one hand, the increase was due to low domestic refinery imports in March, and on the other hand, a domestic supply shortage may be caused by the interruption of Iran's high-sulfur fuel oil supply in May. The cracking difference between high-sulfur fuel oil and Brent crude oil remains high. As Russian refineries resume production in the later period, there is room for correction in the valuation of high-sulfur fuel oil.
[The weak pattern of low-sulfur fuel oil is difficult to change] Compared with high-sulfur fuel oil, the fundamentals of low-sulfur fuel oil have not changed significantly in the near future. Although domestic refinery low-sulfur fuel oil output fell by 11.8% month-on-month in April, low-sulfur fuel oil remained weak despite the background of sufficient supply and lack of bright spots in demand. The overall downward trend of oil prices has further intensifiedviejasbingoThe price difference between low and high sulfur has been narrowed.
[Investment Strategy Suggestions] In the current market environment, investors are advised to adopt a unilateral neutral investment strategy, pay attention to the possibility of a correction in the valuation of high-sulfur fuel oil, and pay close attention to changes in supply and demand in the low-sulfur fuel oil market.