Asia Fuel Oil-Ex-wharf differentials plummet, dragging time spreads and cash lower


Induced by intense selling pressure, Singapore ex-wharf differentials flipped into a deep discount on Tuesday which in turn weighed on both the swaps and cash markets, traders said.

“Some deals were done as low as minus $3 to minus $4, but no one knows why,” said one Singapore-based trader in reference to the ex-wharf, or bunker, markets. “All sellers are shocked.”

Ex-wharf differentials of 380cst fell to their lowest since June last year, switching from a $1.25 a tonne premium on Monday, to minus $3 a tonne on Tuesday.

“Ex-wharf was real sloppy today and that made people uneasy. The market’s got a bit of indigestion at the moment,” said a second Singapore-based trader, but added that despite the weakening market, he saw fundamental supply and demand conditions improve slightly.

Still, the widening ex-wharf discounts helped weaken sentiment which spread into other areas, traders said.

In the physical markets, cash discounts of 380cst fuel oil fell to minus $2.25 a tonne below Singapore quotes, the lowest since March 1. FO380-SIN-DIF

In the swaps market, the 380cst June-July spreads contract widened its contango structure to minus $3 on the Intercontinental Exchange (ICE), 75 cents lower from the start of the day, industry sources said.

The front-month East-West contract, used in the calculation of the arbitrage window, also remained near its lowest levels since the start of the year at plus $17 a tonne, leaving the arbitrage window rather tight, traders said.

The front-month East-West spreads were at their lowest last week on Friday at $15.25 a tonne, and averaged $23.16 a tonne throughout 2016, Thomson Reuters data showed.

In Europe, indictors pointed to improving demand for bunkers, or marine fuels, placing further pressure on incoming arbitrage volumes, traders said.

“Container throughput indicators at a number of major European ports confirm our impression that regional bunkering demand has seen some upside since the beginning of the year,” JBC Energy said in its daily research note on Tuesday.

While data from a number of major regional ports including the Netherlands and Germany are not yet available, demand statistics also show an upward trend in Dutch and German bunkering activity, JBC Energy said.

“For Q1 as a whole, we estimate European fuel oil demand to have increased by roughly 40,000 barrels a day from last year,” the report said.

– Kuwait Petroleum Corporation, issued a tender offering 80,000 tonnes of high-sulphur
fuel oil for June 3-4 delivery.

– A rally in U.S. crude oil prices recently has put the market on its firmest footing since the rout started in 2014, with the spread between prices for near-term delivery and future delivery narrowing, suggesting the worst of the supply glut may be over.

– Nigeria’s oil production has fallen by almost 40 percent to 1.4 million barrels a day due to militant attacks on facilities in the Delta region, its oil minister said on Monday.

SINGAPORE CASH DEALS - Two cash deals reported. For further details, please see 
 FUEL OIL                                                                                  
 CASH ($/T)                 ASIA CLOSE       Change   % Change   Prev       RIC
 Cargo - 180cst                      230.31    -1.13      -0.49     231.44  FO180-SIN
 Diff - 180cst                        -1.92    -0.48      33.33      -1.44  FO180-SIN-DIF
 Cargo - 380cst                      226.66    -1.17      -0.51     227.83  FO380-SIN
 Diff - 380cst                        -2.25    -0.61      37.20      -1.64  FO380-SIN-DIF
 Bunker (Ex-wharf)- 380cst           223.66    -5.42      -2.37     229.08  BK380-B-SIN
 Bunker (Ex-wharf) Premium            -3.00    -4.25    -340.00       1.25

Source: Reuters

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