06-04-2018

Apr VLCC high sulfur fuel oil fixtures from NWE East drop on overloaded Singapore

The movement of European fuel oil to Asia has dwindled in April on a closed arbitrage, a well supplied Singapore market and an increase in VLCC freight rates, traders said.

HSFO VLCC cargoes have been shifted from Rotterdam to the east so far in 2018 despite an uneconomical arbitrage as a lack of demand in Europe due to a well supplied market which has left traders no option but to send product to Asia, even at marginal premiums.

Weak Asian demand has slowed European fixing as the volume of available bunker fuel has built up there, reducing requirements from Europe.

Additionally, rises in VLCC lumpsum freight rates, with a fixture for Rotterdam to Singapore last booked at $2.75 million have made the economics increasingly more difficult.

Freight rates fell steadily from mid-February through March to a low of $2.6 million, before rebounding in April.

The rise in freight comes at a time when owners earnings are low and the European HSFO market is weighed down by an overload of product, failing to lend support prices.

The physical to paper differential on the 3.5% FOB Rotterdam barges was last assessed at minus $0.25/mt, continuing the typical contango structure that the barge market has adopted this year, as premiums struggle to rise due to the vast amount of product available in Europe and a lack of power generation outlets outside the EU.

Typically there are five VLCCs that sail east to Singapore each month drawing fuel oil away from Rotterdam, however there were only two recorded for March.

This is in contrast to the six vessels which loaded in January and five in February. There is only one recorded VLCC fixture for April, the Olympic Leopard.

Another Suezmax vessel, Antarctic, was heard on subjects late Wednesday to take fuel oil from Rotterdam to Singapore for a lumpsum of $1.9 million, however subjects have yet to be lifted.

Olympic Liberty, a VLCC originally booked for a March departure, departed Rotterdam Wednesday laden with fuel oil and is bound for Singapore, according to S&P Global Platts trade flow software cFlow. The vessel arrived at the Dutch port on March 18.

This will likely contribute to a draw in fuel oil stocks, which were last recorded at 1,061,000 mt, up 13% on the week, according to data from PJK Consulting. Stocks rose from mid-March due to the lack of VLCC movement east, sources said.

The volume of fixtures in early 2018 on an uneconomic arbitrage was helped by some companies fixing Iranian VLCCs owned by the National Iranian Tanker Corp. for arbitrage shipments between Europe and Asia, sources said.

Fuel oil traders and shipping sources have said Iranian VLCCs can typically be fixed at up to $500,000 below the standard rate for arbitrage routes between Europe and Asia.

Iranian vessels typically carry a hefty discount to other ships as many majors will not fix them, since some of the vessels are older and they have typically been more difficult to insure.

Looking east the drop in fuel oil arbitrage arrivals might support the Asian market, sources said.

Market sources said they expect May arbitrage fuel oil volumes to come in below April’s, which is expected to be 4.8 million-5 million mt.

Even so, the 380 CST HSFO market was not expected to experience a significant upswing in the immediate future, as it would still take a while for the fairly heavy arbitrage supply the market has had so far seen this year to be consumed, traders said.

Source: Platts

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