Singapore low-sulfur marine fuel arbitrage arrivals from West set to dip in Feb

Singapore's low sulfur fuel oil arbitrage arrivals from Western markets are expected to decline slightly in February, after a rise in January, according to multiple trade sources on Feb. 12, although stockpiles are anticipated to build during the month, weighing on market fundamentals.

The world's largest bunkering hub of Singapore is expected to receive about 2.7 million-2.8 million metric tons of LSFO from the West in February, dipping from about 2.9 million-3 million mt in January, at least six Singapore-based traders told Platts.

Despite seasonal strength in downstream bunker demand ahead of the Lunar New Year holidays, traders in Singapore said near-term supplies appear adequate due to steady inflows of low sulfur blending components.

"The West-East arbitrage window has been closed for the last two weeks ... But overall volumes in February will be somewhat similar, or only very slightly lower, compared with January," a Singapore-based trader said. "Inventories are looking like there will again be a build ... but it is mostly medium-sulfur components. So, on-specification balance-wise, it could be a little bit tight on the inventory side."

Platts assessed the spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, at $42/mt on Feb. 11, wider by 25 cents/mt day over day. The spread has widened about 20% over the last month, Platts data showed, but traders said arbitrage was uneconomical due to higher freight rates.

"I heard there are a lot of medium-sulfur fuel oil cargoes coming from the European side ... In fact, they are much higher than the sulfur cutters," said another trader, adding that February's shorter calendar was another factor in the slight drop in arrivals. "But March could be even less ... because the arbitrage window has been shut over the last two weeks."

Platts assessed the Singapore 0.5%S marine fuel cargo's differential to the MOPS marine fuel 0.5%S assessment at a discount of $1.33/mt at the Feb. 11 Asian close, compared with minus $1.61/mt on Feb. 10, which represented the biggest discount since $1.67/mt on Nov. 11.

The Singapore-delivered marine fuel 0.5%S bunker premium against benchmark Singapore marine fuel 0.5%S cargo assessment has fallen nearly 27% so far this week and was assessed $21.33/mt at the Asian close Feb. 11, Platts data showed. The premium rose to a more than 16-month high of $29.21/mt on Feb. 6.

European supply

Meanwhile, the European market remains well supplied with VLSFO, with ample availability and slower demand, according to trade sources in Europe. However, elevated dirty tanker freight rates to Asia continue to pressure the VLSFO and mid-sulfur arbitrage window to Singapore, limiting the volume of products moved.

"There is plenty of VLSFO around ... You can find it easily," said a Northwest European trader source.

In the Mediterranean, adverse weather conditions for much of January led to delays and closures at key ports across the Western Mediterranean, hurting demand in the region.

Although higher freight costs limit the volume of fuel oil exported from Europe, market participants continued to note some barrels leaving the region, attracted by healthy premiums in Asia.

"We have had a big move in the [East-West spread], and usually that would see more [cargoes moving], but freight is outstripping the pace," said another trader source.