Singapore's LSFO arbitrage arrivals from West seen falling further in February

Singapore's low sulfur fuel oil arrivals from the West were seen edging lower in February, shrinking for a third consecutive month amid mostly unviable arbitrage economics, but seasonal demand weakness weighs on the fundamentals.

Singapore is now expected to receive around 1.6 million-1.7 million mt LSFO from the West in February, down from around 1.8 million mt in January and lower from above 2.2 million mt in December 2024, according to trade sources.

The January arbitrage volumes actualized quite low, and it was a big drop from December as there were fewer cargoes from Brazil, said a Singapore-based trader, adding that he was "seeing February arbitrage levels at around 100,000 mt lesser versus January." "We still see less arbitrage volumes from South America," he said.

The Asian LSFO fundamentals, however, would likely remain relatively rangebound in February as sluggish bunker demand due to the Lunar New Year holidays offset the lesser arbitrage arrivals, trade sources said. The market is expected to continue struggling this year as a continued rise in the proportion of scrubber-fitted vessels dampens bunker demand for the cleaner marine fuel grade.

"The West-East LSFO arbitrage window is currently shut... But some players still tend to move some volumes despite it being shut," said one trader, while another trader said some low sulfur straight run fuel oil barrels coming from Nigeria's Dangote refinery could enter the supply pool in Singapore toward the very end of February.

Trade sources said there was also a recent LSFO export spot tender from Kuwait Petroleum Corp's Al-Zour refinery for loading over Feb. 16-17 that was likely awarded to Glencore at a discount of $8-$9/mt to the Mean of Platts Singapore 0.5%S marine fuel assessment. If cargo ends up heading toward Singapore, it will only reach the Singapore Straits in early March, as February is a shorter month.

The spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, was assessed at $39.25/mt on Feb. 5, up $1/mt day over day, but about 22% narrower compared with its level three months earlier, S&P Global Commodity Insights data showed.

Platts assessed the Singapore 0.5%S marine fuel cargo's cash premium to the Mean of Platts Singapore Marine Fuel 0.5%S assessment at $5.88/mt on Feb. 5, up 20 cents day over day, but the cash differential has dropped nearly 36% over the last two weeks, Commodity Insights data showed.

Meanwhile, in Europe, market participants noted that the Europe to Singapore very low sulfur fuel oil arbitrage was closed for much of January but opened up toward the end of the month.

One trader source noted that several ships were fixed on the arbitrage toward the end of January when the East/West spread rose. However, the trader sees the arbitrage as closed for now.

"Arbitraging with Suezmax [ships] looks impossible... even arbitraging with VLCC now looks impossible too," the trader noted. However, a second European trade source said at the end of January "a lot of oil [VLSFO] was moving East".

Another trader saw a Suezmax booked for Singapore carrying 1%S fuel oil and components, which are expected to be blended into the Singapore VLSFO bunkering pool.

Within the broader European VLSFO market, tighter supplies across Northwest Europe and the Mediterranean have provided a tailwind for prices, while demand on the arbitrage to Singapore has also been a key point of strength.

An additional source noted that the Mediterranean is "a very short market" for VLSFO, therefore, local production has remained within the region.