05-08-2016

Asia Fuel Oil-Market structure narrows, physical liquidity fades

fueloil

Asia’s 380-cst fuel oil continued to narrow its contango structure on Thursday, boosted by expectations of tightening supplies, while liquidity in the physical markets fades.

The Aug/Sept time spread for 380-cst fuel oil narrowed for third session straight on the Intercontinental Exchange (ICE), contracting to a discount of about 50 cents a tonne by Asia close at 0930 GMT, industry sources said.

Similarly, the further dated Sept/Oct time spread 380-cst fuel contract also narrowed its contango to just 5 cents a tonne compared to Wednesday’s settlement at minus 85 cents.

On Platts, however, the same contracts settled differently from ICE with the Aug/Sept trading at parity compared to Wednesday’s contango of $1.05 while the Sept/Oct contract was $1.35 a tonne narrower from the previous session at a 15 cent contango, sources said.

The narrowing of the contango structure comes amid a marginal build in Singapore onshore fuel oil inventories which rose by 112,000 barrels (or almost 17,000 tonnes) to 26.74 million barrels (about 4 million tonnes), in the week to Aug. 3, official data showed.

“Sure we expected to see a stock draw this week, but still, the inventory increase was tiny, it’s not even enough to fill one MR (medium-range handymax vessel),” said a Singapore-based trader, pointing out that the increase was a result of low exports rather than high imports.

In the physical markets, liquidity was significantly reduced in the Platts window with no trades reported and just four standing offers for 380-cst fuel by the market close, industry sources said.

This was in sharp contrast to Wednesday’s nine trades and nine standing offers.

“All of yesterday’s sellers were absent from the window today,” said another Singapore-based trader.

Nevertheless, buying interest in the window was still evident from the higher bid levels compared to Wednesday, according to market participants, helping narrow cash discounts of the 380-cst fuel oil by 77 cents to $1.32 a tonne to Singapore quotes.

“The suppliers’ absence might be a lure for bids to come up,” a third Singapore trader said.

RELATED NEWS:

– Heavy sweet grades strengthened in the Asia-Pacific crude market, supported by firm margins for middle distillates and fuel oil, traders said on Wednesday.

– U.S. crude’s slide below $40 a barrel this week has hardened the resolve of oil market bears to drive prices lower, with oversupply, refining cutbacks and a breakdown in the oil/dollar trade spelling an end to this year’s rally.

SINGAPORE CASH DEALS – No cash deals reported. For further details, please see

 FUEL OIL                                                                                  
 CASH ($/T)                  ASIA CLOSE       Change   % Change  Prev      RIC
                                                                 Close     
 Cargo - 180cst                       220.25    10.68      5.10    209.57  FO180-SIN
 Diff - 180cst                         -0.35     1.23    -77.85     -1.58  FO180-SIN-DIF
 Cargo - 380cst                       213.68     9.75      4.78    203.93  FO380-SIN
 Diff - 380cst                         -1.32     0.77    -36.84     -2.09  FO380-SIN-DIF
 Bunker (Ex-wharf)- 380cst            213.48     8.25      4.02    205.23  BK380-B-SIN
 Bunker (Ex-wharf) Premium             -0.20    -1.50   -115.38      1.30

Source: Reuters

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