Singapore July LSFO arbitrage arrivals from West seen rising as margins more viable

Singapore's low sulfur fuel oil arbitrage imports from the West are seen in the 2 million-2.6 million mt range in July, rising from inflows of 2 million to 2.2 million mt in June, as lower freight costs lead to more viable arbitrage margins than before, initial trader estimates showed July 5.

Arbitrage arrivals in the Far East region have been in an uptrend, because of abundant supplies and weaker demand in Europe.

"The East-West LSFO arbitrage [window] widened so much that cargoes can come through," said a Singapore-based trader, as rising inflows pressure Asian fundamentals.

Arbitrage cargoes of close of 1.7 million barrels, or about 267,000 mt, of straight-run fuel oil in two shipments have been sourced from Nigeria's Dangote refinery for mid-June and early-July arrival in Singapore.

"Dangote cargoes are coming, though there's no Kuwaiti cargoes so far. Freightwise, it's cheaper to partially load up a Suezmax than [an] Aframax," said a second fuel oil trader.

Increased arbitrage flow expectations have capped significant upsides in upstream cash valuations due to sufficient inventories in the world's largest bunkering hub for the near term.

Platts, part of S&P Global Commodity Insights, assessed Singapore marine fuel 0.5%S cargo's cash differential to Mean of Platts Singapore marine fuel 0.5%S assessments at an average of $4.55/mt over July 1-4, rising from an average of $2.47/mt in June but lower than the $5.54/mt average in May.

LSFO importers have maintained regular arbitrage volumes for July and expect to at least ship their minimum monthly volumes toward the Far East for August, traders said.

The spread between the Platts FOB Singapore marine fuel 0.5%S cargo and the FOB Rotterdam Marine Fuel 0.5% barge averaged $46.53/mt in the second half of June, compared with $45/mt in the first half of the month and $44.78/mt over July 1-4.

Platts assessed dirty Rotterdam-Singapore VLCC rates near a nine-month low of $20.37/mt on July 4, down 19 cents/mt on the day. The rate was last lower at $20/mt on Oct. 10, 2023, and averaged $20.51/mt over July 1-4, compared with $23.18/mt in June and $27.13/mt in May.

Traders also anticipate "incremental" LSFO cargoes from neighboring Indonesian refineries to find a home in Singapore in July, replenishing inventories.

More than enough stockpiles around the Singapore hub could intensify competition in the downstream end-user market, while weighing on delivered and ex-wharf premiums, local bunker suppliers said.

"Suppliers prefer [delivered] term contracts with minimum nomination commitments for July and the third quarter, ensuring that they can move their cargoes," a bunker trader said.

Weak margins have plagued Singapore's downstream bunker suppliers, especially smaller market participants with monthly ex-wharf requirements, as delivered premiums have been under pressure as because of competition with China in the wake of ample LSFO supplies.

Platts assessed the Singapore marine fuel 0.5%S M1-M2 swaps intermonth spread at $6.25/mt on July 4, down 10 cent/mt on the day. The spread has narrowed for two consecutive sessions due to weak-to-neutral sentiment for July.

Lackluster European dynamics

Weak 0.5% fuel oil consumption and higher supplies have been prevalent in the European fuel oil market into summer.

Market players have pointed to limited bunkering demand from the Mediterranean and Northwest Europe. Due to issues Houthi attacks on vessels in the Red Sea, shipowners have chosen to traverse around the Cape of Good Hope, improving bunkering appetite in Cape Town and Fujairah but hurting consumption in the Mediterranean.

A recent fire at Nigeria's Dangote refinery has not impacted the refinery's ability to produce product, with uninterrupted low sulfur straight run fuel flows around the Atlantic and to Asia.