Last week, driven by the crude oil end, the unilateral price of fuel oil experienced a trend of high inflation and then stabilized. As of Friday, the main Fu futures of high sulfur fuel oil futures recorded 2578 yuan / ton, up 6.1% on a month basis; meanwhile, the main force of low sulfur fuel oil futures recorded 3379 yuan / ton, up 2.7% on a month basis. The price difference between lu2105 and fu2105 cut to 786 yuan / ton last Thursday, down 73 yuan / ton on a month basis compared with the previous week. On the external market, Singapore’s high sulfur 380cst fuel oil swap M1 contract recorded $395 / T by Friday, up 2.1% on the previous week; meanwhile, Singapore’s marine0.5% fuel oil swap M1 contract recorded $513.5/t, up 1.4% on the previous week. The external market marine 0.5% vs 380cst hsfo swap spread M1 recorded $118.5/t as of Friday, down $1.05 / ton on a month basis.
Crude oil prices rose on Monday, with Brent breaking $71 a barrel. But then international oil prices fell rapidly and began to stabilize and enter a more flat upward trend since Wednesday. We currently believe that the long logic of oil prices has not been reversed significantly. On the one hand, the upward and downward trend of last week is that the price of the previous period has risen too fast, including the pricing of some attacks on Saudi Arabia. At present, it is seen that the local facilities are not damaged in substance, and this “premium” is also falsified. On the other hand, the strength of the US debt interest rate and the dollar index has disturbed the upward trend of oil prices. But in general, the trend of crude oil tightening has not changed. Due to OPEC’s cautious increase in production and the fact that the recovery of shale oil supply in the United States is subject to capital expenditure, it is difficult to match the supply end completely under the background of gradual recovery of demand after the outbreak. This pattern of supply and demand mismatch promotes the continuous de stocking of excess stock and also forms a strong support for the current price of crude oil. Before the supply and demand pattern was broken, we believe that oil prices still have space and drive to continue to rise. Therefore, we maintain a cautious and optimistic attitude towards the crude oil end, and the unilateral price of downstream fuel oil is expected to continue to be supported by the cost side. Of course, the downside risk cannot be ignored completely at present. Both the early return of Iranian oil to the market and the substantial increase of OPEC in the next meeting are significant potential negative factors. Therefore, we do not recommend excessive chasing up for the unilateral price of crude oil and fuel oil.
In terms of the basic aspect of fuel oil, there are some marginal turning trends in the recent high and low sulfur fuel oil (low sulfur marginal turn weak, while high sulfur has stabilized). We mentioned the potential drivers of each other before, high sulfur fuel oil is the seasonal recovery of power generation demand in Middle East and other places, while low sulfur fuel oil is due to the increase in supply caused by overestimation (the previously high sulfur fuel oil cracking price difference was relatively strong in the mass oil). At present, both of these drivers have been shown, but not very obvious. In terms of high sulfur, we have seen the increase in fuel oil demand in Middle East and South Asia in recent years. In addition, the ship period data show that Saudi Arabia’s fuel oil import rebounded significantly in March (estimated import of 710000 tons in March and 440000 tons on February), but there is still room for growth from the procurement volume in peak season. From the perspective of the weak marginal shift of low sulfur fuel oil, some Asian refineries are increasing the production of low sulfur fuel oil in recent years, but the supply of China has not seen this trend (refer to the statistics of jinlianchuang in January and February, the domestic low sulfur production is about 700000 tons). In addition, since Asia, including China, will enter the period of centralized refinery maintenance in March and April, while Brazil’s export is still at a low level, we expect that the probability of significant increase in the supply of low sulfur in the short term is not very high.
In general, we believe that the unilateral price of high and low sulfur fuel oil is expected to rise further under the trend of upward crude oil end. There is no big contradiction in their basic plane at present. The trend of high and low sulfur differentiation has been significantly relieved in the early stage, but there is still insufficient driving force to reverse. Therefore, we expect that the cracking price difference of high and low sulfur fuel oil in the short term and the price difference between them may be in a partial fluctuation trend. In terms of internal market, the Fu external price difference has been in a low position in recent years. This structure is also conducive to the remaining warehouse receipts. We see that 9100 tons of warehouse receipts were cancelled last week and the total amount of warehouse receipts also dropped below 200000 tons. Referring to exchange data, inventory subtotal items also reduced 9100 tons, so these warehouse receipts may have been actually digested by the end consumer market. In the future, if the digestion process of the high sulfur fuel oil warehouse order can be smoothly carried out, the performance of Fu disk is expected to be stronger on the basis of the existing.
Strategy: Fu is cautious in one side, while Lu is more cautious;
Risk: OPEC’s future production exceeded expectations; Iran Oil returned to the market ahead of time; refinery started to rise sharply; shipping demand improved less than expected; distillate oil market performance was not expected; Lu warehouse receipts were registered in large quantities; Fu warehouse receipts were cancelled in large quantities.
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