Fuel oil: low sulfur support weakened, arbitrage considering take profit

On the supply side, in terms of low sulfur, China's large-scale issuance of refined oil products and the landing of low-sulfur export quotas may drag down low-sulfur prices; In addition, it is currently at the peak of autumn maintenance of overseas refineries, which inhibits low-sulfur output
to a certain extent.
The gradual end of maintenance from November will ease the tight supply of low-sulphur overseas
.
In terms of high sulfur, Europe will impose restrictions on Russian offshore oil exports from December, but according to the current data, Russia's high-sulfur fuel oil exports have not decreased significantly, and the Fujairah port was once blocked due to excessive Russian supplies
.
Russia is still expected to avoid the loss of most of Europe's export share by increasing exports to the Asia-Pacific region, and the supply of high sulfur in Asia will remain relatively adequate
.

On the demand side, dry bulk freight prices fell again at the end of October, and the container market remained sluggish
.

In terms of power generation demand, the peak summer high-sulfur power generation season in the Middle East is gradually ending, and European natural gas prices have fallen sharply recently, and European gas-to-oil demand in winter may be less than expected
.
At present, the main force of TTF has fallen by more than 60%
from the previous high.
In its October report, the IEA expected that there will still be incremental demand
for oil and gas substitution of 400,000-500,000 bpd and 300,000 bpd in Europe in the fourth quarter of this year and Q1 '23.
The high level of gas prices may lead to significantly lower demand for gas-to-oil in Europe this winter than the market had previously expected, weakening
support for low-sulphur fuel oil.

Overall, it is expected that the unilateral price of fuel oil will mainly follow the fluctuation of oil prices, and the trend is not obvious
for the time being.
In terms of arbitrage, it is expected that the main support (gas price + tight supply) in the early stage of low sulfur may be lower than expected, and it is recommended that the long low sulfur short and high sulfur positions gradually take profit
.