Singapore Fuel Oil Trading Heats Up

Singapore fuel oil trading volumes have soared after the 380-cst front-month time spreads widened by around $1 per tonne from the previous day's close, in what could develop into an aggressive trade strategy that occasionally rattles this market.

 

The 380-cst March/April time spreads on the Intercontinental Exchange (ICE) saw about 700,000 tonnes in contracts trade after physical trading in the S&P Global Platts Market-on-Close (MOC) price assessments concluded at 0830 GMT on Tuesday.

 

The flurry took the spreads to about $1.70 a tonne in post-European trade by 0400 GMT on Wednesday, from around plus 70 cents a tonne previously.

 

Traders said they were preparing for a strategic bullish trading strategy on expectations of tightening supplies around March or April amid fewer exports of fuel oil from key producers like Russia, Venezuela and the Middle East.

 

A decline in Asian production as it enters its peak refinery maintenance season is also limiting supplies.

 

Traders said unusually high open interest (OI) in the ICE traded 380-cst March contract of over 9,000 open contracts, compared with a more usual volume of 5,000 to 6,000 contracts, pointed to the rising activity.

 

"Rising OI is not an indication of a bull or bear play, but it's an indication of interest to do so," said a Singapore-based trader.

 

"I think shorts capitulated as the rising OI suggested (it's) game on next month," another trader said.

 

Sources also said some traders were starting to charter Singapore-bound tankers that could be used to store or transport large quantities of physical fuel purchased in a trading play.

 

"Everyone was expecting a bull play (earlier) in February, but it didn't happen. But (it) looks (like it's) happening now," said a Singapore-based fuel oil broker.

 

The broker also said the ICE traded West-East arbitrage spreads, which describe the profitability of shipping fuel oil from Northwest Europe to Asia, jumped from $15 to $18 per tonne in a sign that traders could be gearing up for more activity.

 

The last such trading surge in fuel oil, with traders scrambling to take profit from rising prices, was in March 2016 when a handful of traders bought and sold huge volumes of the shipping fuel, setting up wide swings in prices and spreads.

 

Singapore is the world's most important fuel oil trading hub, benefiting from its location between the Middle East's oil producing countries and North Asia's main fuel consumers of China, Japan, South Korea and Taiwan.

 

Singapore is also where S&P Global Platts assesses the daily Asian prices - based on electronically published deals in a specified time-frame - that help set the refined product benchmarks for dozens of refined oil products.

 

Reporting by Roslan Khasawneh