Fuel oil markets opened high on July 30 but then retreated, seeing a strong rebound in the afternoon session. Contract FU09 closed at 3,711, up 3.89% from the previous session, while LU09 ended at 4,807, rising 3.07%. On the geopolitical front, a Pakistani spokesperson told media on July 30 that negotiations between the United States and Iran are ongoing, particularly regarding the Strait of Hormuz and de-escalation measures.
Fundamentals have seen little change. From the supply side, recent shipments of fuel oil from Singapore and the Middle East have increased. Demand is supported by a recovery in bunkering activity and the seasonal peak for power generation, while geopolitical disruptions keep the supply-demand structure tight. Lufax (LU) benefits from structural contradictions in diesel, which amplify its volatility, making its fundamentals stronger than those of FU. Following seasonal patterns, European diesel cracking is expected to strengthen until the end of August, providing continued support for low-sulfur fuel oil. However, caution is warranted against potential extreme bubbles.
Inventory data shows that as of July 22, Singapore fuel oil stocks stood at 19,460 thousand barrels, up 2% week-on-week. European ARA fuel oil inventories totaled 615 thousand metric tons, down 9% week-on-week. As of July 24, China's Zhoushan bonded fuel oil stocks were 790 thousand metric tons, down 6% month-on-month. Globally, most inventories are near the lower end of recent years. Low inventories indicate a tight supply-demand balance, supporting fuel oil prices at elevated levels.
In the short term, if geopolitical tensions persist at a high level, there is a high probability of continued upward price movement. However, if geopolitical factors shift to a marginal easing, the current decline may be more moderate than the sharp drop seen since late June, as demand provides some support. Short-term, the price direction depends on cost trends, with wide fluctuations expected amid geopolitical uncertainty. For those looking to trade, betting on a Trump-led easing carries significant risk for short positions, so buying deep out-of-the-money put options is recommended. Ultimately, the downward potential is seen as more resilient than the move observed since late June.
Asphalt markets saw BU 09 also open lower on July 30 but rebound in the afternoon, closing at 4,165, up 1.22%. This gain was smaller than in the energy sector, reflecting its more moderate nature. The asphalt structure is constrained by demand factors, with persistent heavy rainfall in southern China impacting activity. For the week of July 24, the operating rate of modified asphalt in Shandong was 14.59%, unchanged from the previous week, remaining at multi-year lows for the same period. According to data from Longzhong, as of July 30, the spot price of heavy-duty asphalt in the Shandong market was 4,325 yuan per metric ton, up 0.12% from the previous session. In East China, the price was 4,660 yuan, unchanged; in South China, 4,460 yuan, unchanged; and in Northeast China, 4,550 yuan, unchanged. Asphalt spot prices are easing from highs but remain relatively firm, reflected in the back structure of near-term and deferred contracts. In the short term, cost factors are decisive for price direction, with wide fluctuations expected. If geopolitical conditions loosen, asphalt's resilience is higher than that of SC, FU, and LU.
For spread trades: First, consider taking profits on long LU/short FU positions, as new expansion of this spread should be approached with caution. Second, buy BU/short FU at lower levels. Over the long term, BU faces unresolved supply constraints from Venezuelan feedstock shortages.
Comments