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Demand from Singapore for fuel oil leaves Europe short of product

London — The European fuel oil market has become quiet dry as demand from Singapore has drawn vast volumes from typically net-long Europe, resulting in a spike in Suezmax freight rates, sources said Tuesday.

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Suezmaxes have been the vessel of choice over the past few weeks with 130,000 mt fuel oil cargoes loading directly from Baltic ports and sailing east. The route avoids the usual route to storage in Amsterdam-Rotterdam-Antwerp, and the fight with the backwardation and blending costs. Instead the cargo captures value on a fast voyage to a strong market in Singapore.

"All the Russian M100 fuel oil is heading east with this backwardation. There is hardly anything offered into ARA," a fuel oil trader said.

Fresh Suezmax cargoes keep being pumped out from Russia, despite the tighter availability of fuel oil. UML, the shipping arm of Socar, has a Suezmax cargo open for a mid-November laycan with discharge options east, shipping sources said.

The most recent Suezmax fuel oil cargo from the Baltics to Singapore was concluded at a $4.1 million lump sum by UML on the Brightway for a stem ex-Baltic off November 4-6 loading dates.

In comparison, last week Stena Sunrise was said to have been on subjects to Clearlake off end-October dates at a $3.8 million lump sum.

The active fuel oil arbitrage route to Asia from Northwest Europe has reduced the available tonnage, and the front end of the position list has become tight with 27 ships available in the next 30 days, against a three-month average of 38, shipbroking sources said.

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The boost in rates comes on firm Persian Gulf, Caribbean and Black Sea markets. Libya crude oil cargoes continue to be exported east, which is shifting tonnage out of the region at a time of year when, typically, freight rates rise due to weather delays and higher seasonal demand, sources said.

Despite the preferred route from the Baltics, around 1.05 million mt of fuel oil has already departed Rotterdam this month for Singapore, with a further 130,000 mt expected to leave in coming days. That will be the highest export quantity from the Dutch bunker hub since February.

Singapore, the world's largest bunker hub, has suffered from a shortfall of product from Iran due to the impending US sanctions.

That has seen European cargoes head east, tightening availability in Europe and boosting premiums. As a result, the European market is in a counter-seasonal swing as winter 3.5% FOB Rotterdam barge intermonth spreads price in backwardation.

The November-December intermonth barge spread last traded on ICE at $9.25/mt and December-January was traded at $6.25/mt, when the market typically sinks into contango as traders destock for year-end accounting.

--Eleni Pittalis, eleni.pittalis@spglobal.com

--Peter Farrell, peter.farrell@spglobal.com