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Asia Fuel Oil-Arbitrage spreads squeezed shut, cracks widen

Arbitrage spreads from northwest Europe into Asia fell to some of their lowest levels in months despite tighter regional supplies and expectations of fewer arrivals in the third quarter, traders said. August fuel oil cracks also slipped on Monday, widening their discount to crude amid rising oil prices, but remain elevated by tighter supplies and peaking summer demand.

TIGHT ARBS
Industry sources said near-dated arbitrage spreads have suffered loses for nearly two weeks despite seemingly relatively tight Singapore fuel oil supplies.

The ICE-traded August and September arbitrage spreads were both down 75 cents a tonne on Monday to $11.50 a tonne and $13.25 a tonne, respectively, by 1700 Singapore time (0900 GMT).

“The (arbitrage spread) looks like there is abundant oil in Singapore,” said Singapore-based one fuel oil trader.

While onshore Singapore fuel oil stock have rebounded from 2-1/2 year lows in the beginning of June, fuel oil inventories so far in July have averaged 21.86 million barrels compared to 27.56 million barrels in the previous year.

Another Singapore-based trader said the current arbitrage spreads were offering very few incentives to bring in oil from northwestern Europe.

“It would be very difficult to profit at these rates and even if you could, a day or two of demurrage costs could change all of that,” said the second trader.

REFINING MARGINS
The spread between the 180-cst fuel oil swap and Dubai crude for August slipped 25 cents a barrel to a discount of 89 cents a barrel, Reuters data showed.

This came as oil prices edged up to around $49 a barrel as a slowdown in the increase of rigs drilling in the United States eased concern that surging shale supplies will undermine OPEC-led cuts.

Still, tighter structural supplies and firm demand have helped boost the front-month fuel oil crack in July to an average of minus 69 cents a barrel, compared to minus $4.79 at the same time last year.

“The OPEC cuts have mostly been on the heavier, sour grades and this has, obviously, had an effect on the fuel crack price which is keeping fuel oil very well supported,” said Matt Stanley of Dubai-based Freight Investor Services.

“I imagine this strength will continue throughout the rest of the year,” he said.

WINDOW TRADES
Two cargo trades reported in the Platts window, totalling 40,000 tonnes of 380-cst fuel oil.
Source: Reuters (Reporting by Roslan Khasawneh; Editing by David Evans)

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