OPEC+ production cuts through the end of July will limit the availability of medium sour crude, in turn putting a lid on HSFO supply and keeping cracks supported over summer (see Market Watch – Issue 6).

  • Consequently, HSFO cracks are expected to find additional support over summer, on the back of seasonally picking up power generation demand and rising asphalt production, minimising the effect of rising crude intake.
  • In addition, the strong pull on expensive Urals barrels from Asia and improving HSSR/HSFO premiums is suggesting a strong interest in conversion operations on both sides of the Atlantic over the past weeks. This has also been confirmed by ship-tracking data.
  • However, with support from conversion setups waning as of late, a prolonged rally in HS residue cracks remains unlikely. And this shall remain the case for some time, as even if medium-sour OPEC+ crude returns, it will take some time for HSFO supply to pick up and exert pressure on cracks, incentivising yet again buying for conversion operations.