Singapore's March LSFO arbitrage arrivals from West likely to drop by a third as supply tightens

Singapore's low sulfur fuel oil arrivals from Western markets are expected to decline in March amid unviable arbitrage economics to bring cargoes from Europe, while the Middle East conflict continues to affect the inflows.

The world's largest bunkering hub of Singapore is now expected to receive around 1.8 million-2 million metric tons of LSFO from the West in March, dropping from about 2.8 million mt in February, multiple Singapore-based traders told Platts.

The West of Suez arrivals into Asia were earlier expected to be tighter by around 300,000-400,000 mt month over month in March, but with several ships now stuck in the Middle East, that would mean at least another 300,000-400,000 mt of lesser volume, according to the trade sources.

"The ones stuck in the Persian Gulf are definitely not coming... Now, the barrels from other countries might also be held back... taking the overall drop on the month [in March] to about 7-8 ships, which'll be close to around 1 million mt," said one Singapore-based trader.

"But then, even if March is still okay... The bigger impact will be in April. With the current freight, April arbitrage arrivals will be even less," he added.

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 $141/mt on March 18, up from $120/mt on March 17.

The spread, which has firmed about 191% so far in March since the Middle East war began, is currently at its widest on record, according to Platts data that goes back to April 2022, but traders said persistently steep freight rates have kept the West-East arbitrage window practically shut in recent weeks.

"Indeed, March arrivals are overall looking lower, especially with the reduction in Al-Zour [refinery] exports as well [from Kuwait]... Now both March and April arrivals are looking increasingly lower," another Singapore-based trader said, adding that "high freight [rate] is keeping the arbitrage window from the West shut as well."

"Between March and April, we'll draw down nearly 1.5 million mt of stocks [in Asia]," said one trader, while another Asia-based trader said, "I expect to see a draw of on-specification LSFO inventory in the Singapore Straits due to the lower arrivals."

Asia's LSFO cash differentials surged to an all-time high as the Middle East war has drastically reduced supplies, prompting Asian refiners to trim production, and leading countries to hold back near-term exports to safeguard their oil reserves, Platts reported earlier.

Platts assessed the Singapore marine fuel 0.5%S cargo's differential over the Mean of Platts Singapore marine fuel 0.5%S assessment at a premium of $138.80/mt at the Asian close March 18 – a new high on record, according to Platts data going back to May 2019.

European market steady

Meanwhile, within the European VLSFO market, supply remains stable despite ongoing concerns around conflict in the Middle East, though arbitrage volumes out of the region are challenged by elevated dirty tanker freight rates.

"In terms of supply, things are healthy," said a European trader source.

A second trader said "supply is close to normal, refineries have already purchased crude months ago," but added that they anticipate issues "next week or the week after," if the Middle East situation continues.

While the arbitrage window to Singapore remains open on paper, market participants see limited volumes moving out of Europe amid elevated freight costs and a steep paper backwardation.

Platts last assessed the front-month FOB Rotterdam VLSFO barge crack at $3.09/b, March 18, up from minus $2.48/b Feb. 2.