Singapore 0.5% marine fuel suppliers seek finished grade amid lack of blending space

Singapore — Singapore 0.5% marine fuel suppliers and traders have been looking to secure finished grade end-user product due to a lack of available tank space for blending components to make IMO-complaint marine fuel as falling demand leads to a build in inventories, traders said Monday.

"That is correct. I think we now have over 10 million mt of stocks, [landed] tanks and floaters combined," one Singapore-based senior trader at a western company said.

Singapore's heavy distillate inventory levels averaged 4 million mt in the four weeks ended March 26, up from 3.66 million mt in February and 3.51 million mt in January, data from Enterprise Singapore showed.

According to market sources, some 5-6 million mt of low sulfur material is currently being stored in floating storage units in and around Singapore too.

"Blending low sulfur component of say 0.1% sulfur down to make 0.5% sulfur marine fuel is not that easy. You need [tank] space to do that. Compatibility among various blend components is another issue," the trader said.

Apart from having to manage the landed cost of individual blend components, suppliers also have to manage the logistics around the arrival of these components and ensure ullage is created to hold these products in segregated tanks, especially if co-mingling is not an option, traders said.

"There are costs involved in blending. Definitely the cost of blend components will also come down with the drop in [0.5% marine fuel] valuations, but if there is no ullage, it makes it all even more complicated," said another Singapore-based trader at a western company.

"Every company is looking at working capital and cash flow more closely now than ever before," he added.

The Singapore 0.5% marine fuel has also sunk deep into contango territory in recent weeks due to weakening demand amid ample availabilities. This has prompted suppliers to hold on to oil, especially in an environment where outright prices have continued to fall along with the wider drop in crude levels in expectation that prices would rebound, said traders.

Reflecting the bearish sentiment, the market structure at the front of the Singapore 0.5% marine fuel swaps curve has dropped to average a contango of $4.98/mt from the start of the month to March 30, S&P Global Platts data showed. This compares with a backwardation of 64 cents/mt for the front-month swaps spread in February.

"Everybody is trying to keep oil in tanks...at least for the time being," said another trader with reference to traders relying on the contango market structure to help cushion some of the impact from a falling outright price.

Benchmark Singapore 0.5% marine fuel cargo prices have nosedived by over a third month on month to average $292.78/mt from the start of the month to March 30, as compared with February's average of $458.07/mt, data showed.