Ship-tracking data showed that Kuwait's Al-Zour refinery increased fuel oil exports to record levels in January after recovering from an outage. Most of the cargoes were bound for Southeast Asia.

Analysts and traders said that the surge in Kuwaiti supply, which is a major exporter of fuel oil, will increase availability in hubs for bunkering, such as Singapore, and impact prices in Asia.

Kpler's and LSEG's data showed that Kuwait exported the most VLSFO ever in January. The export volume was 205,000 barrels per day, or 1 million metric tonnes.

The rebound followed two months of near-zero exports, when fourth quarter production dropped after ?an outage in some parts of the 615,000-barrel-per-day al-Zour refinery.

A LARGER OUTPUT

A source with knowledge of the situation, who spoke on condition that they remain anonymous, said the refinery is now operating at near capacity.

Kuwait Petroleum Corp. and its subsidiary KIPIC have not responded to an immediate request for comment.

Palash Jain is a Middle East oil market expert at FGE NexantECA. He said that a weaker fuel oil demand in the power sector, along with higher refining production, was a major contributor to this surge.

He added that "colder than normal winter conditions and higher electricity imports to Saudi Arabia reduced Kuwait's demand for power on an annual basis."

Exports mainly go to Asia

Five cargoes are scheduled to arrive in Singapore in January, while others will be heading for Fujairah, United Arab Emirates, and Qatar.

Royston Huan is a senior oil products analyst with Energy Aspects. He said that the market for VLSFO will be under pressure from Kuwait's increased exports this quarter.

Huan said that the strength of high-sulphur oil (HSFO), which is already around $50 per ton, will continue to exert pressure on the hi-5 spreads.

LSEG data shows that the hi-5 spread or price difference - between VLSFO and HSFO - has decreased by over 30% since the beginning of January.

Asia's spot premiums VLSFO has softened since a short rebound in mid-January. The prompt spread for February-March turned into contango by the end of January.

This term refers to a market where prices in the immediate future are lower than in the current month.

Kuwait is a major exporter, especially of VLSFO to Asia, and other Middle East shipping hubs, since al-Zour was brought online late in 2022.

(source: Reuters)