03-03-2017

Asia Fuel Oil-Trading play stalls after sell-off in prompt time spreads

Asiafuel

A sell-off in prompt-month time spreads stalled an anticipated trading play just one day after a surge in trading activity for physical cargoes marked the start of the bullish trading strategy.

A near record 22 physical deals in the Platts window kicked off the trading play on Wednesday, but buying interest for fuel oil cargoes quickly receded on Thursday to just one trade.

The lack of buying interest dragged cash differentials of the 380-cst fuel oil to a discount of 13 cents a tonne to Singapore quotes on Thursday, sharply lower from Wednesday’s premium of $1.70 a tonne.

“Conviction isn’t there … everyone was talking it (the play) up so much but now it looks like it’s falling apart,” one Singapore-based trader said, adding that the traders had already priced in the anticipated play since around mid-February.

Industry sources said bullish traders were likely rattled by the sharp declines in the prompt-month time spreads.

The 380-cst March/April spread contract was trading at a premium of about 75 cents a tonne, down from its intraday high of around $3 a tonne backwardation in the previous session, sources said.

Meanwhile, the 380-cst fuel April/May spread contract slipped into contango of around minus 25 cents a tonne on Thursday despite a tighter supply outlook in April.

Looking ahead, traders said it was not impossible for bullish market players to plough ahead with the trading play in March, but the current market structure and fundamentals made it increasingly challenging.

“It can still work but they need to buy a lot,” another Singapore-based trader said, while pointing out that arbitrage arrivals in April are expected to be low.

Aggressive trading strategies occasionally rattle the fuel oil market, often leading to sharp swings across cash and derivatives price amid increased trading activity.

Expectations of a bullish trading strategy peaked among industry participants by mid-February after trading volumes of the 380-cst front-month time spreads jumped and open interest (OI) levels of the 380-cst March swaps contract soared.

SINGAPORE INVENTORIES

Singapore onshore fuel oil inventories slipped 1 percent, or 28,000 tonnes, in the week to March 1, holding steady near the previous weeks’ seven-month high of 3.98 million tonnes, official data shows.

This came as total net imports into Singapore fell 21 percent from the previous week to a five-week low of 785,000 tonnes.

While traders said they expected to see an increase in inventories this week, others said sluggish demand for marine fuels in Singapore likely helped keep inventories steady despite decrease in net imports.

 FUEL OIL                                                                                  
 CASH ($/T)                 ASIA CLOSE       Change   % Change   Prev       RIC
                                                                 Close      
 Cargo - 180cst                      316.72    -8.25      -2.54     324.97  FO180-SIN
 Diff - 180cst                        -1.17    -1.35    -750.00       0.18  FO180-SIN-DIF
 Cargo - 380cst                      313.43    -8.81      -2.73     322.24  FO380-SIN
 Diff - 380cst                        -0.13    -1.83    -107.65       1.70  FO380-SIN-DIF
 Bunker (Ex-wharf)- 380cst           316.00    -7.50      -2.32     323.50  BK380-B-SIN
 Bunker (Ex-wharf) Premium             2.57     1.31     103.97       1.26

Source: Reuters 

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