Asia Fuel Oil-380-cst diffs hit all-time high above $20/T
Saturday, 21 January 2012 | 00:00
Asia fuel oil's forward curve held firmly in steep backwardation on Friday, as it has been all week since the start of the February pricing month, while cash differentials for the 380-cst grade surged to a fresh all-time high of above $20.00 a tonne.
The physical market, particularly for the most-widely consumed bunkers 380-cst grade, has risen all week, despite earlier expectations that the market will finally come off after three bullish months due to heavy February arrivals.
However, persistently stronger-than-usual demand from both the Singapore marine fuels market, the world's largest, and China's teapot refiners for straight-run fuel oil, have pushed the market stronger.
"There's not much volumes out there today, despite the long holidays, and this implies that most players are content to hold on to their length until after the Chinese New Year holidays," a Singapore-based Western trader said.
"This means that they still see more upside to this market, despite the almost unbelievable heights that it has already gone to. And that there are strong fundamental grounds for this strength."
About 200,000 tonnes were traded for each timespread of February/March and March/April, unlike earlier in the week when more than 300,000 tonnes were transacted for each, at higher price levels of around $16.00 and $12.00 a tonne respectively.
Reflecting the market' strength, fuel oil's front-month crack soared to a second straight four-year high at near parity levels, closing at a discount of 30 cents a barrel to Dubai crude.
Persistently strong demand from the Singapore marine fuels market, which has hit fresh record highs every year since 2003 and totalled 43 million tonnes for 2011, has kept the market supported, particularly in the past 1-2 months.
China's teapot refiners have bought unusually large volumes of straight-run fuel oil as feedstock in 2011, with monthly average import volumes at a five-year high of 2.2 million tonnes, before easing in the fourth quarter. The strong demand resumed for December-arrival cargoes, and has been firm since, with the teapots now seeking March-arrival lots.
The strong demand has kept Singapore inventories low for more than three months and the stock levels plunged to their lowest since July, 2009, at just over 15 million barrels (2.36 million tonnes), despite the expectation of rising inflows from the second half of this month.
The strong market has also continued to draw offers from regional suppliers, with ExxonMobil offering a second 90,000-tonne parcel of high 700-cst viscosity for February-loading from Yanbu, with India's HPCL offering two 35,000-tonne February-lifting lots, including one for prompt Feb. 1-3 loading from Vizag.
Over the past two days, cargoes have been sold at higher than previous price levels, while
the strong market has also kept the West-to-East arbitrage window open, with new bookings from Europe and the Caribbean seen for most of the week.
Three new bookings were seen -- the Very Large Crude Carrier (VLCC) Antonis was provisionally chartered for loading in February in the Caribbean, while the 130,000-tonne Antarctic was booked by Cargill for Feb. 4 lifting from the Amsterdam-Rotterdam-Antwerp (ARA) region and the 80,000-tonne British Holly for Feb. 1 lifting from the Baltics.
The East-West spreads widened for an eighth consecutive session, keeping arbitrage margins wide at around $25.00 a tonne levels, despite soaring freight rates for VLCCs plying the ARA-Singapore route that soared to above $7 million, or $26.85 a tonne, per charter, up from $5.75 million at the start of the week, and $4.3 million just a week ago.
(Table of Western arbitrage fixtures: )
SWAPS SPREADS: February/March edged up 38 cents to a backwardation of $16.13 a tonne by the Asian close at 0830 GMT, with 180,000 tonnes traded at $16.00 a tonne, up from 165,000 tonnes previously. Bids/offers were last seen at $15.75/$16.00 by 0530 GMT.
Only 5,000 tonnes of January/February was traded at $17.50, while 240,000 tonnes of March/April were done at $11.75-$12.00 and 5,000 tonnes of April/May at $7.25 a tonne.
At least 60,000 tonnes of Q2/Q3 were traded at $16.25, while 15,000 tonnes of Q3/Q4 were done at $12.25, 45,000 tonnes of January viscosity at $14.50-$15.50 and 5,000 tonnes of February at $13.50 a tonne.
SWAPS OUTRIGHTS: The February and March 180-cst swaps were valued at $710.63 and $694.50, up $3.38-$3.75, or around 0.5 percent.
At least 105,000 tonnes of February were traded at $709.50-$711.25, down from 115,000 tonnes previously. Offers were seen at $710.00 by 0530 GMT. Only 5,000 tonnes of January were traded at $729.00, while 20,000 tonnes of March were done at $693.00-$694.00.
One 5,000-tonne lot of January 380-cst was transacted at $713.25, 70,000 tonnes of February 380-cst at $695.50-$679.00 and 15,000 tonnes of March 380-cst at $680.25-$680.50 a tonne.
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EAST-WEST SPREADS: The East-West February spread strengthened 75 cents to $53.50, while March was 50 cents higher at $46.50 a tonne.
SWAPS CRACKS: The February crack widened 14 cents to a discount of 44 cents, while March weakened 20 cents to a discount of $2.35, with March Brent climbing 70 cents to $111.99 a barrel by the Asian close.
CARGO PRICES AND DIFFERENTIALS: The 180-cst grade gained $3.85 to $729.25 a tonne, while the 380-cst grade was $7.02 higher at $719.88. The differentials for the 180-cst grade edged up 55 cents to a premium of $17.00, while the 380-cst premium strengthened $3.05 to $21.10 a tonne.
TENDERS: Exxonmobil offered 90,000 tonnes of 700-cst, for Feb. 14-16 lifting from Yanbu, with a deal expected to be reached by Jan. 26.
CASH DEALS: Three deals.
- Vitol bought 20,000 tonnes of 180-cst, for Feb. 9-13 lifting, from PetroChina at a premium of $17.00 a tonne to Singapore spot quotes.
- ConocoPhillips bought 20,000 tonnes of 380-cst, for Feb. 7-11 lifting, from Westport at a premium of $9.50 to balance January quotes, equivalent to a premium of $23.16 to Singapore spot quotes.
- ConocoPhillips also sold 40,000 tonnes of 380-cst, for Feb. 5-9 lifting, to Mercuria at a premium of $20.00 a tonne to Singapore spot quotes.
BUNKERS: The Singapore bunker differential, the price spread between ex-wharf marine fuel prices and fuel oil cargo values, widened $1.98 to a premium of $25.13, with bunker prices at $744.00-$746.00, up $9.00.