- The Asian refined oil market is generally showing signs of weakening. Dragged down by a significant drop of 3.64% in West Texas Intermediate crude oil (CL1!) on the New York Mercantile Exchange and a 2.93% decline in Brent crude oil (BRN1!) on the London Intercontinental Exchange, various refined oil segments within the Singapore trading window are generally under pressure. Among them, the near-month spread of high-sulfur fuel oil has shifted from a backwardation structure to a contango, indicating that the recent ample spot supply is changing the previous pricing for tight supply.
- In the middle distillates segment, the Asian diesel crack spread recorded a significant pullback, dropping to about $39 per barrel, marking the lowest record since March 11, 2026. As the market continues to digest the fundamental changes of potential supply increases in the region over the coming months, spot buying interest remains cautious, and the spot premium in the Singapore window continues to be under downward pressure dominated by low-priced seller offers.
- The naphtha market has seen a passive recovery in margins due to the weakening of benchmark crude oil, with its crack spread against Brent crude oil recording a significant increase. However, as the total supply in the near-month spot market remains relatively ample and the downstream chemical industry demand has not shown strong cooperation, many traders remain pessimistic about the future, believing that the narrowing of the contango structure may only be a temporary marginal improvement.
Key Shift in Fuel Oil Market Structure
At the close of the Asian session on Thursday, the high-sulfur fuel oil market structure exhibited clear signs of weakness. According to data from the London Stock Exchange Group (LSEG), the July to August 380-cst high-sulfur fuel oil spread broke the previous backwardation trend, turning into a contango of 70 cents per ton. Although overall spot trading remains light, the spot premium for high-sulfur fuel oil continues to decline. In contrast, the ultra-low-sulfur fuel oil market showed some resilience, with its spot premium slightly rising, and the near-month backwardation structure expanding compared to the previous trading day. This indicates a phase of differentiation in the supply-demand pattern among different components of fuel oil.
Fuel Oil Crack Spread Approaches Six-Month Low
The changes in the crack spread further confirm the weakness in the high-sulfur fuel oil segment. The 380-cst high-sulfur fuel oil crack spread against Brent crude oil closed lower today, reported at a discount of about $7.95 per barrel, nearing the historical low of the past six months. In contrast, the ultra-low-sulfur fuel oil crack spread recorded an increase, rising to a premium of $12.65 per barrel. From the window trading perspective, no physical transactions for high-sulfur fuel oil and ultra-low-sulfur fuel oil were recorded in the Singapore trading window today. If there is no significant improvement in the demand for high-sulfur crude oil substitutes or marine fuel, the high-sulfur fuel oil crack spread may continue to fluctuate in a low range.
Increased Supply and Weak Demand Drag Diesel Crack Spread to Multi-Month Low
The diesel segment led the decline today, with the diesel crack spread falling to about $39 per barrel, the lowest level in over three months. Market analysts pointed out that although there was a slight rebound in the inter-month spread, it did not change the overall surplus outlook for middle distillates in the region, as the market is rapidly digesting the bearish fundamentals of potential supply increases in the coming months. As a result, the diesel spot premium fell again, closing at $1.56 per barrel. In the aviation kerosene sector, the jet fuel to diesel spread turned negative again, reported at a discount of about 40 cents per barrel. No physical transactions for diesel and jet fuel were recorded in today's Singapore spot trading window.
Naphtha Crack Spread Rebounds but Sentiment Remains Under Pressure
In the light distillates market, due to the weakening of benchmark Brent crude oil prices, the naphtha crack spread against Brent crude oil recorded a contrarian rise, significantly increasing to $83.40 per ton, compared to about $73 per ton on the previous trading day. Boosted by this, the contango structure in the naphtha market narrowed sharply today, finally reported at a discount of $1.25 per ton. However, spot traders remain cautious about the sustainability of this rebound. Mainly because the current near-month spot supply in the region remains ample, if there is no trend reversal in the demand for downstream light hydrocarbon cracking units, the overall market sentiment may find it difficult to escape the constraints of a negative tone in the short term.
