Is Sing 0.5 setting up for another great run?

As I mentioned in the previous piece, the feedstock picture seems to be firming up quite a bit in NWE and the MED the last 2 weeks. VGO is strong as noted, LSSR has also picked up with a Skikda May loader heard around ICE + $16/bbl FOB.

Here’s a new chart for my readers. This chart assumes taking Skikda LSSR (at 6.93 conversion) on an Aframax, Arzew LSSR (at 6.92 conversion) on an MR and Dangote LSSR (at 6.84 conversion) on a Suezmax into Rotterdam and normalizes the arrival period to a rolling M+1’2D (which is still mid-May as of today).

All landed levels are normalized against Brent Swap. Dangote is traded on Rott 0.5 basis so obviously crack movements will have an effect here. Structure based on arrival decade is included.

What immediately pops out to me is the big gap between Dangote value vs the MED LSSR streams. Usually, a gap is expected as feedstocks takers would place a premium on the consistency and also the better quality of Skikda or Arzew resid over Dangote molecules which is what we saw before the war. But this gap has seemingly exploded in recent days.

If I look at this chart and imagine myself as a feedstock taker, I would be very tempted to bring Dangote to the West right now – that big of a gap is enough to compensate for the trouble of taking it. But maybe that doesn’t even matter when I’m scrambling for feeds!

On the other hand, the table below suggests terrible blend margins for the VLSFO blenders in Singapore at current premiums and spreads.

Unless they have access to niche discounted streams, I imagine it would be very hard for the Singapore blenders to compete with the Western feed takers at these values.

What I’m saying is that unless relative values change, Dangote looks quite poised to head West here. The caveat of course is that feeds appetite in NWE is a lot smaller than the size of the bunker pool in Singapore.

Now let’s look at this from a different angle. What’s happening to the Rott-Sing 0.5 arb assuming a Suezmax going around the Cape?

The first chart shows margins for a rolling M+1’2D loader and breaks down the components making up that arb. The second chart shows a comparison between margin for M+1’2D loader vs an average of M+2 to M+4 loaders.

At these margins, opportunistic arb flow from the West to Singapore should be minimized and that suggests we should start seeing quite a lack of arb arrival from end of May or early June onwards.

Lastly, as I suggested in a previous snippet, bunkering inquiries naturally tapered off after that initial rush to secure anything possible in the weeks following the start of the war but shipowners will want to start looking again for the next buying cycle from late May on.

And all those tankers picking up crude from the USGC and making the trip back to Asia to discharge? Yes, a good portion will probably bunker here in Singapore too.

From end of May, owners would be looking for bunker against a backdrop of reduced regional low sulphur streams from run cuts, reduced arb flows from the West, reduced swing volume from Dangote, and to a smaller extent, less volume of blending components shared with the gasoil pool.

In short, what I’m trying to get at here is that the big picture is shaping up in quite a favourable way for an early summer Sing 0.5 play. I quite like Sing 0.5 cracks and 0.5 EW here, and even spreads to some extent.

Thank you for your attention to this matter! – Analyst HN