Singapore's low-sulfur marine fuel arbitrage arrivals from the West to drop further in April

Singapore's low sulfur fuel oil arrivals from the Western markets are set to decrease for a third straight month in April, partly weighed down by unviable arbitrage economics due to persistently high freight rates, while the ongoing war in the Middle East continues to block oil inflows from the region.

Singapore, the world's largest bunkering hub, is now expected to receive around 1.4 million-1.5 million metric tons of LSFO from the West in April, down from about 1.8 million-1.9 million mt in March, multiple Singapore-based traders told Platts, part of S&P Global Energy. The March volume bore the first brunt of disruption after the US and Israel launched strikes on Iran on Feb. 28, which led Tehran to start blocking the Strait of Hormuz.

"April [arbitrage arrivals] are going to be lower. May should be even lower," said a Singapore-based trader, adding that "even when the East-West spread is $100-plus/mt, it looks like it's widely open. But when you think about the voyage time, and the backwardation, it's not workable."

Another Singapore-based trader said, "Indeed, we are seeing lower arrivals for April ... Less arbitrage volumes from Europe and more diversion away from Singapore to other ports, including Mauritius and Mozambique, etc." The trader added, "May does also look like lower arrivals."

There are medium sulfur components available in the Singapore market, partly buoyed by Brazilian supplies, but sulfur cutter availabilities are quite tight at present, according to several trade sources.

The downstream bunker demand in Singapore has been weak in recent weeks, and that's weighing on the market, according to trade sources.

"Supplies are less. But it doesn't really matter because demand is so bad," said one trader, while another trader said, "I think the market sentiment is turning bearish because of weak demand ... Supplies are limited, but demand is quite weak."

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 $74/mt on April 16, unchanged day over day.

The spread, which hit a record high of $165/mt on March 19, has since cooled off about 55%, according to Platts data that goes back to April 2022, but traders said persistent strength in dirty freight rates has kept the West-East arbitrage window largely shut in recent weeks.

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 $21.08/mt at the Asian close April 16, down from $22.90/mt on April 15.

Meanwhile, within the European VLSFO market, participants observed an open arbitrage window at the beginning of April, but declining premiums in Asia continue to weigh on this arbitrage opportunity.

"There were some loadings on VLSFO arbs ... there are three cargoes for May arrivals in Singapore," a Europe-based trade source said.

While dirty tanker freight rates have fallen from their highs, so too have premiums in Singapore, challenging the arbitrage window from Europe.

Fundamentals in Europe remain stable despite ongoing supply concerns centered around the Middle East conflict.

"There is lots of availability in the market, there are enough offers," said an additional trader source.

Platts last assessed the front-month FOB Rotterdam VLSFO barge crack at 78 cents/b, April 15, down from a peak of $5.08/b, March 6.