Singapore’s LSFO inflows from West seen increasing in Oct amid viable arbitrage economics

Singapore’s low sulfur fuel oil arrivals from the West were seen increasing in October, thanks to widely workable arbitrage economics, but trade sources said limited availability in Northwestern Europe as well as the Mediterranean region would keep a lid on overall volumes.

The world’s largest bunkering hub of Singapore is now expected to receive around 2.6-2.7 million metric tons of LSFO from the West in October, compared with around 2.4 MMt scheduled for September, trade sources said in the week to Sept. 27. Traders had initially estimated September arrivals at around 2.6-2.7 MMt, S&P Global Commodity Insights reported earlier, but some of the late-September fixtures are now expected to arrive in October.

The Asian LSFO market has garnered strength in recent trading sessions, especially after China released a fuel oil export quota of 1 MMt in its third batch for the year, which market sources believe would be inadequate and prompt Chinese bunker suppliers to potentially draw around 500,000-600,000 metric tons of LSFO supplies per month from Singapore for the remainder of the year.

“The Chinese export quota is a big game changer for the Q4 balance [in Asia],” said a Singapore-based trader.

From mid-October onwards the LSFO market in Asia was expected to be pretty well supplied on the back of higher Western arbitrage arrivals, and that’s why the market saw some downward pressure earlier, one trader said. “But the general consensus flipped after the news on China’s low export quotas came out. October still should see higher volumes from the West compared with September… which could cap any major upsides to the market going forward,” the trader added.

“It also depends on how much cargo can be piled up on the European side. It’s not so easy to add smaller cargoes to make a bulk size for exporting [to the East],” the trader said, while another trader noted that the Mediterranean region is also quite tight at present as they were using LSFO for the last leg of summer power generation.

The Singapore market, however, is expecting increasingly higher supplies from Kuwait’s Al-Zour refinery in coming weeks as summer utility demand in the Middle East wanes, but planned turnarounds at the mega-refinery in Q4, starting as early as October, would likely cap its exports, according to trade sources.

The spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, was assessed at $52.75/t on Sept. 26, down $1/t on the day, but still hovering closer to its widest level in two weeks, Commodity Insights data showed.

Platts, part of Commodity Insights, assessed the Singapore 0.5%S marine fuel cargo’s cash premium over the Mean of Platts Singapore Marine Fuel 0.5%S assessment $3.08/t lower on the day at $12.02/t on Sept. 26, weighed down by competitive offers from Shell for October-loading cargoes during the Platts Market on Close assessment process.

Tightness in Europe
Meanwhile in Europe, the physical very low sulfur fuel oil complex has been characterized by an overall tightness due to the open Europe-to-Singapore arbitrage status, driven by the recent strength in Singapore VLSFO spot premiums, which in turn was making further shipments challenging due to a lack of product in one place in Europe, trade sources said.
Traders said another factor that was contributing further to the eastern pull of VLSFO were quotas emerging from China, which have displayed that the country is short of the product.

One trader also attributed the current tightness of VLSFO components in Europe to the Dangote refinery in Nigeria ‘not exporting at the moment’. Another trader said VLSFO cracks were “being pulled up by Singapore,” adding that the recent strength in the paper market was due to the high premiums in Singapore that were supporting the current arbitrage East.

The key demand center for 1%S fuel oil is the 0.5%S fuel oil blending pool, but the demand to cover utility shorts around the Mediterranean, however, was gradually dropping as cooling requirements were ebbing with summer coming to a close, sources said.

Platts last assessed the Marine Fuel 0.5% FOB Rotterdam barge market at $513.75/t Sept. 26.
Source: Platts