SINGAPORE – Kuwait’s Al Zour refinery increased its fuel oil exports to a record high in January after recovering from an outage, with most of its cargo heading to Southeast Asia, ship tracking data showed on Monday.
A surge in supplies from Kuwait, a major fuel oil exporter, will increase availability in fuel supply hubs such as Singapore, putting pressure on prices in Asia, traders and analysts said.
Kuwait’s very low sulfur fuel oil (VLSFO) exports exceeded 1 million tonnes (205,000 barrels per day) in January, the highest monthly volume on record, according to Kupler and LSEG data.
The recovery comes after two months of almost zero exports, with output falling in the fourth quarter due to partial shutdowns at the 615,000 barrel-per-day Al Zour refinery.
higher output
The refinery, which restarted in late December, is now running at near full capacity, a source said on condition of anonymity.
Kuwait Petroleum Corporation and its subsidiary KIPIC did not respond to requests for comment.
In addition to increased refining production, “lower demand for fuel oil from the power sector was the main driver of this surge,” said Palash Jain, Middle East oil market specialist at FGE Nexant ECA.
“Kuwait’s electricity demand decreased year-on-year due to colder-than-usual winter conditions and increased electricity imports from Saudi Arabia,” he added.
Exports mainly to Asia
Most of the VLSFO cargo loaded in January was bound for Asia, with five cargoes scheduled to arrive in Singapore and others destined for Fujairah in the United Arab Emirates and Qatar.
“The VLSFO market is likely to come under pressure this quarter due to increased Kuwait exports,” said Royston Huang, senior petroleum products analyst at Energy Aspects.
“This will put further pressure on the Hi-5 spread, which is already at around $50 per tonne level, in the short term due to the strength of the high sulfur fuel oil (HSFO) complex,” Huang added.
According to LSEG data, the Hi-5 spread, or the price difference between VLSFO and HSFO, narrowed by more than 30% from the beginning of January to the end.
Asia’s VLSFO spot premiums briefly rebounded in mid-January and then softened, but the rapid spreads from February to March turned into contango by the end of January.
This term refers to a market where the instant price is weaker than last month’s price.
Since Al Zuhr came online in late 2022, Kuwait has become a major exporter of refined products, especially VLSFO, to other shipping hubs in Asia and the Middle East.
(Reporting by Jeslyn Lerh; Editing by Florence Tan and Clarence Fernandez)
