Haitong Futures: Low-level rebound in high- and low-sulfur fuel oil; watch for the impact of Russia’s diesel export ban on LU.

On the cost side, with the US-Iran conflict once again dragging uncertainty, after Trump attended the NATO summit, he took a mid-way press visit in Washington and said that Iran is very eager to reach an agreement, which slightly eased the bullish intraday energy reaction. From a fundamentals perspective, on the spot side, as of July 8, the Singapore 380cst swap price versus the domestic FU closing price recorded a spread of -$24/ton, staying in the doldrums at low levels with both the inside and outside windows closed. On the Singapore high-sulfur oil 380cst, the discount recorded -$2.93/bbl; since July it has rapidly flipped from a high premium in June into a discount mode, suggesting spot prices have room to ease.

On the supply side, recent increases in Russian and Iranian high-sulfur oil supply have mitigated supply tightness. On the demand side, watch for power generation demand peaking in mid-July, as well as seasonal support for marine fuel demand from late June through August. On inventories, with supply rebounding, stocks should see catch-up replenishment, but they remain at a relatively low level over the past four years.

In the near term, within the 60-day negotiation window, US-Iran bilateral frictions still show no signs of abating. After geopolitical “bubble” effects have already been largely priced in under current market conditions, any incremental geopolitical escalation is likely to provide strong and sensitive support to current prices—especially since prices have already fallen to a certain extent, where a technical oversold rebound may occur. In the short term, as the fundamentals shift toward improving demand and replenishment-driven buying, the strength of demand can ease the outlook of supply looseness, with price support still above FU 2800.

The US-Iran situation remains uncertain. After Trump’s remarks calling on Iran to reach an agreement, the next focus is on Iran’s follow-up statements and Strait passage conditions. Procurement hedging firms have previously been advised to buy in batches on dips. (Haitong Futures)