Asian fuel oil benchmark prices fell sharply this week as traders priced in higher Middle Eastern crude and fuel supplies, while Democrats' capture of the US Congress eased concerns about further escalation of the US-Israeli war with Iran.
Softer residual fuel prices would ease the costs of refuelling for shippers and lower feedstock procurement costs for refineries.
Asian refiners' margins for 380-cst high-sulphur fuel oil (HSFO) slumped on Thursday, with the Dubai-basis crack closing at a discount of $2.29 a barrel versus a premium of $5.34 a barrel at the start of the week, based on LSEG data.
The crack was at its lowest since mid-September, extending declines after flipping into discounts in the previous session.
Regional supply has improved as higher exports from the UAE's Fujairah cap prices, said Emril Jamil, a senior oil research manager at shipping analytics firm Kpler.
UAE fuel oil exports bound for Singapore and Malaysia totalled about 729,000 tonnes in October, an eight-month high, Kpler data showed.
"The market is down on expectations that if a peace deal comes to fruition, more oil outflows from the Middle East will weigh on prices," Jamil said.
Cracks for 0.5 per cent very low-sulphur fuel oil (VLSFO) also softened this week. Spot premiums for both Singapore HSFO and VLSFO have also weakened.
Brent crude futures settled at their lowest level in more than two months on Wednesday after President Donald Trump's Republican Party lost control of Congress in midterm elections, with investors betting the power shift could hasten an end to the Middle East war.
Despite the recent pullback in prices, some traders expect the market to find support as elevated freight rates continue to restrict cargo flows from Europe to Asia.
Total fuel oil arrivals in Asia reached a seven-month high in October, breaching six million tonnes, ship-tracking data from Kpler and LSEG showed. Traders, however, expect November arrivals to taper off.
"The market is still tight towards the year-end, and there should be some rebound. Freight is still expensive, which makes resupply costs expensive," a Singapore-based fuel oil trader said.
The surge in freight had pushed the east-west fuel oil price spreads to record premiums in end-October.
While freight costs have started to ease after hitting multi-year highs in early October, current costs to charter an oil tanker from Europe to Asia remain elevated.
Dirty tanker freight rates from Rotterdam to Singapore hit a record high of about $168 a tonne in mid-October, before easing to about $95 a tonne this week, LSEG data showed.
(Reporting by Jeslyn Lerh; Editing by Florence Tan and Harikrishnan Nair)