West-Singapore Dec LSFO arbitrage flows seen steady to lower on high freight
Singapore is expected to receive 1.3 million-1.8 million mt of low sulfur fuel oil from the West of Suez in December, compared with November when 1.5 million-1.8 million mt of fuel oil was likely to have landed, fuel oil traders said during the week of Nov. 28.
The arbitrage window was mostly shut during mid-October to mid-November due to high freight costs, fuel oil traders said, while dirty tanker freight has been surging.
The Arab Gulf-Far East Asia Aframax freight averaged $39.33/mt in October, which rose to $49.57/mt over Nov. 1-28, S&P Global Commodity Insights data showed.
Aframax freight rates remains bullish as dirty tanker ton-mile demand rose significantly since the start of the Russia-Ukraine war.
Russian baseload Aframax Baltic-North West Europe route has been redrawn to further consuming countries and EU countries sourcing crude and fuel oil from further supplying countries like the US and the Middle East have tightened the supply of Aframax globally.
Platts assessed the freight at $58.33/mt Nov. 28, an all-time high since S&P Global Commodity Insights first launched the assessment in May 2002.
On the other hand, Singapore’s marine fuel 0.5%S values gained in November, reflecting tightening supply, compared with October.
The marine fuel 0.5%S East-West spread between Singapore and Rotterdam Barge marine fuel 0.5%S averaged $61.91/mt over Nov. 1-28, compared with $53.21/mt in October, S&P Global data showed.
Fuel oil traders in Asia said cargo supply in early December was thin and stocks were not on-specification in Singapore.
European traders continued to note limited arbitrage opportunities in the 0.5%S and 1%S fuel oil markets despite poor local demand across both markets.
Sources said European 1% and 0.5%S fuel oil markets remain long due to ample supply of blending components, while little support can be found from demand in the downstream bunker market.
Meanwhile, soaring freight rates have served to both confine product to Europe and exacerbate oversupply of blending components.
“We are keeping open our short haul options because bringing stuff to the US is not very feasible,” a fuel oil trader said.
The source noted that blendstocks such as vacuum gasoil and straight-run residual fuel were increasingly staying within the European bunker blending pool as refineries prioritized short-haul routes for product, contributing to length in the market.
Refineries such as Whitegate, known as “swing producers” in the LSSR market were increasingly looking to sell into the 0.5%S marine fuel blending pool despite poor margins, according to sources who noted the limited appeal to arrange shipments of feedstock further afield in the current environment.
According to Kpler shipping data, no VLSFO was exported out of Europe in the week beginning Nov. 21, and none was confirmed for delivery outside the continent on the week commencing Nov. 28.
In LSFO markets, Kpler shipping data projected a 35.6% weekly decline in European exports in the week commencing Nov. 28.
While HSFO has continued to flow from Europe to Singapore, India and other Asian countries, exports are expected to drop dramatically in the next week. In particular, Kpler projected Russian exports to plummet from 728,000 mt to 141,000 mt in the week beginning Dec. 5, when EU sanctions against Russian oil are due to come into effect.