Analysts: Low-sulfur fuel oil will follow crude oil fluctuations

On January 12, the energy sector of the domestic commodity market led the rise, with low-sulfur fuel oil performing the most brightly
.
As of the close, the main contract of low-sulfur fuel oil futures 2303 closed at 3941 yuan / ton, up 5.
09%.

Analysts believe that the rise in overnight crude oil prices and the rise in low-sulfur cracking spreads are the main reasons for the sharp rise in low-sulfur fuel oil prices on the 12th, and low-sulfur fuel oil will follow the price fluctuations
of crude oil.

Jin Xiao, chief energy analyst of Orient Derivatives Research Institute, said that low-sulfur fuel oil rose sharply, both due to the transmission of crude oil rise and the contribution of the upward trend of low-sulfur cracking spread
.
With the gradual recovery of the domestic economy, the demand for gasoline in the Asian region has rebounded significantly, because the low-sulfur VGO, a resource for producing gasoline, can be used to reconcile low-sulfur ship fuel, and there is a positive relationship
between low-sulfur fuel oil and gasoline.
The gasoline cracking price spread in Asia rebounded significantly, and the low sulfur cracking rose significantly on the 12th, which is a lagged reaction
to the recovery of gasoline cracking.

"Crude oil prices rebounded, and the cost side drove the price of low-sulfur fuel oil up
sharply.
" Zheng Mengqi, a researcher at Haizheng Futures Energy, said that although the latest EIA data shows that the US commercial crude oil inventories have increased sharply by 18.
961 million barrels, the comprehensive strategic petroleum reserve has been reduced by 800,000 barrels, the total inventory has still increased sharply by 18.
161 million barrels, and refined oil products have accumulated, but oil prices are still rebounding
sharply driven by macro and geopolitical factors.

"If inflation falls, the Fed will slow down the pace of interest rate hikes to some extent, and the dollar index will continue to be weak to the downside, which is positive for commodities
.
" Zheng Mengqi said that in addition, on February 5, the EU ban on Russian refined oil exports will take effect, Russia said that it will make every effort to ensure its interests in the energy market, the main risks are oil price discounts, oil embargoes and price caps, the main problem of oil trade is the rise in freight costs, and it is expected that Russian oil discounts will be reduced
.
If Russia actively cuts its own production on this basis and tightens supply, supply uncertainty caused by geopolitical risks will remain, or further push oil prices higher
.

Zheng Mengqi analyzed that in early January, the first batch of low-sulfur fuel oil export quotas in 2023 was issued, totaling 8 million tons, an increase of 1.
5 million tons, or 23.
08%, compared with the first batch of low-sulfur fuel oil export quotas of 6.
5 million tons in 2022, indicating that the domestic low-sulfur fuel oil production capacity is relatively sufficient, and the future supply is considerable
.
In addition, due to higher temperatures, the recent sharp drop in natural gas prices has eased the cost of hydrogenation of low-sulfur fuel oil, although diesel cracking is still high, but with the launch of new capacity of Kuwait's hydrodesulfurization unit, the supply side will gradually be relaxed
.
From the demand side, due to the inflow of Russian fuel oil into Asia, suppressing the price of high-sulfur fuel oil, its economy is better than low-sulfur fuel oil, and the current shipping demand is relatively general, coupled with the Spring Festival holiday approaching, the demand is relatively weak
.

Li Yunxu, senior analyst of SDIC Anxin Futures, said that fuel futures prices followed the steady rise of crude oil, and the cracking spread of overseas gasoline and diesel rose overnight, and French refineries faced the threat of strike again, which once again supported the gross profit
of overseas refineries in the short term.
In this context, the intraday trend of low-sulfur fuel oil is slightly stronger than that of high-sulfur fuel oil
.
In the later period, the overseas diesel market is mainly facing the increase in China's exports on the supply side, the uncertainty of Russian exports, and the recovery of China-related international routes on the demand side, which has led to the increase in demand for intermediate distillates and many factors, and the trend market still needs to wait
.
Overall, the short-term contradiction between the cracking spread of high- and low-sulfur fuel oil is limited, and the medium-term needs to wait for further guidance
from the EU on February 5 on the embargo of Russian maritime refined oil products.

Jin Xiao said that the global economy is still facing challenges in 2023, and it is difficult to increase the demand for marine fuel significantly
.
Low-sulfur fuel oil production capacity is still expanding, especially in Asia, the supply of low-sulfur fuel oil in the Middle East will rise in 2023, China's low-sulfur fuel oil export quota policy makes it difficult for low-sulfur fuel oil supply and demand to appear in a serious state of short supply, so there is no significant contradiction
in the fundamentals of low-sulfur fuel oil itself.
The biggest variable is likely to come from changes in Russian VGO flows after the ban on Russian refined oil imports went into effect
.

"Both the expectation of an increase on the supply side and the expectation of a weakening on the demand side have put some pressure
on low-sulfur fuel oil.
" Zheng Mengqi said that considering that the diesel cracking spread is at a high level, its absolute price still fluctuates with crude oil, and the future market needs to further track the release rhythm
of the supply side.

Xue Yangming, a researcher at Xinhu Futures Energy, said that OPEC+ financial breakeven and the US storage SPR will support the bottom of crude oil, short-term suppressed by demand, crude oil trend is oscillating, and oil prices are expected to strengthen
in the future with the decline in Russian supply and the substantial improvement of domestic demand.
Low-sulfur fuel oil is expected to mainly follow crude oil fluctuations, but weaker than crude oil, that is, crack spreads will come under pressure
in the future.
In the future, the fundamentals of low-sulfur fuel oil are expected to weaken, and the future market will mainly focus on the disturbance of refined oil and natural gas, as well as the commissioning of new integrated units
.