SINGAPORE: Asia’s 0.5% very low-sulphur fuel oil (VLSFO) time spread and cash premium extended gains on Monday as concerns over tightening supplies and firming demand lifted the market higher. Low-sulphur residual fuel output has come under pressure as refiners optimize production of other fuels like gasoline and gasoil as well as from elevated gas costs which have boosted desulphurization costs.

Despite absent physical trade, the VLSFO cash differential climbed to $9.51 a tonne to Singapore quotes, its highest since February 2020.

Similarly, the front-month VLSFO time spread widened its backwardated structure to a near two-year high of $10.75 a tonne, Refinitiv data showed.

“We see a downside to HSFO-Brent cracks on more OPEC+ supply and higher refinery runs and upside for VLSFO-Brent versus the curve on stronger light and middle distillate demand in 2022, creating yield competition,” said Bank of America (BofA) in a note to clients late on Friday.

According to BofA, refiners in Europe and Asia buying spot gas and power have faced an estimated $6 per barrel higher processing costs now versus 2020, “which has proven untenable for some operators.” Overall floating storage inventories for residual fuel in the Malacca Strait slipped to a more than one-year low in the week ended Nov. 17, dragged lower by a drop in VLSFO and high-sulphur fuel oil (HSFO) volumes, according to data intelligence firm Kpler.

Total floating storage inventories fell by 38,000 tonnes, or 2%, from the previous week to 2.57 million tonnes.