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Singapore August LSFO arbitrage inflow set to fall on weak Asian prices: traders

Highlights

Less than 2 mil mt of LSFO to arrive in Singapore in Aug

Lower inflow aids Marine Fuel 0.5%S time spread

Singapore — Singapore is expected to receive 1.5-2 million mt of low sulfur fuel oil from the West in August, down from 2 million mt in July, traders told S&P Global Platts July 20, as ample supply and sluggish demand continued to weigh on the Asian market.

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The spread between Singapore Marine Fuel 0.5%S and FOB Rotterdam Barge Marine Fuel 0.5%S, or the East-West spread, dropped to $16.55/mt in June, from $30.03/mt in May, S&P Global Platts data showed. The spread was not wide enough to transport cargoes from Europe to Asia, traders said.

"Freight rates were weak, but Asian Marine Fuel 0.5%S market was even weaker. Transporting cargoes from the west does not make sense economically," said a fuel oil trader based in Singapore.

The freight rates have dropped in the second half of June, but that did not help the inflow to the East to increase, traders said.

The VLCC rate from Rotterdam to Singapore dropped to $16.67/mt on June 24, the lowest since February 28, when it was assessed at the same level, Platts data showed.

The Marine Fuel 0.5%S market has been in contango since February 14 due to a supply glut, Platts data showed.

Singapore's commercial onshore residue stocks were staying at high level since late May, hitting a three-year high of 26.666 million barrels or 4.2 million mt on July 8, Enterprise Singapore data released showed.

Meanwhile, Brazil is typically the biggest supplier among arbitrage cargo suppliers from the West, with 300,000-500,000 mt a month of low sulfur fuel oil sending to Asia, traders said.

Lower inflows aid time spread

The lower inflow of arbitrage cargoes is supporting the August/September structure in the Singapore Marine Fuel 0.5%S market, market sources said.

The time spread started to firm early July, rising to minus $1.50/mt on July 17, the highest since February 21, when it was assessed at minus $1.25/mt, Platts data showed.

Despite the narrowing contango, market sources said supply remains stable.

"I think there is sufficient oil. Inventories were lower [according to the latest Enterprise Singapore data] but the draw was not that much," said a Singapore-based fuel oil trader.

The stocks slipped 2.1% from the three-year high to 26.11 million barrels as of July 15, Enterprise Singapore data showed.

Downstream delivered bunker market is yet to see a significant recovery in demand, as buyers are only procuring on a need-to basis.

"I did not discuss for July and August term volumes because there is still quite a lot of supply in the spot market," said a Singapore-based shipowner, adding that he hasn't decided whether to discuss for September term volumes.

Market participants added that demand is showing some signs of improving. "There are more inquiries on some days but at current price levels no one is stockpiling. The market outlook is still quite bearish with the coronavirus outbreak," another trader said.

On July 17, Singapore-delivered Marine Fuel 0.5% was assessed at $325/mt, up $4/mt on the day. At this level, the price was trading at a $18.50/mt premium to the benchmark FOB Singapore Marine Fuel 0.5% cargo.