SINGAPORE, May 18 — Western fuel oil shipments to East Asia for June arrival are expected to be lower than May’s above-average volumes, with 2.9 million to 3.0 million tonnes booked so far, as the close of the tanker-fixing window from Europe nears, traders said today. Fixing activity has been slow for the past two weeks, amid tightening supplies in Europe, bringing a gradual narrowing of the West-to-East arbitrage window that had been open for much of the past one month. “Europe’s been getting tight from end-April onwards, with less Russian cargoes finding their way to the Amsterdam-Rotterdam-Antwerp region,” a Singapore-based Western trader said. “There’s been quite a bit of maintenance in Russia while higher demand for straight-run parcels, both within Europe and from the US, have pulled supplies away from the cracked pool.” Reflecting the stronger Western markets, the prompt timespread for the Rotterdam 380-cst barge market has been steadily steepening in backwardation since end April. May/June peaked at a backwardation of US$9.50 (RM28.50) a tonne, rising from a low of US$3.38 in end-April, and expired as a pricing tool at US$8.25, while June/July was valued at US$5.88 on Monday’s Asian close. The steep backwardation has also notionally shut the West-to-East arbitrage window, with a buffer of US$8.50-US$9.00 a tonne, down from double-digit figures for much of the past month. The East-West spreads have also narrowed, with its front-month June contract valued at US$38.00 a tonne at Monday’s Asian close, down from above US$40.00 for the front-month contracts for most of April. Freight has also risen since, to US$3.8-US$3.9 million per charter, or US$14.00-US$15.00 per tonne, for a Very Large Crude Carrier (VLCC) plying the ARA-Singapore route, up from US$3.4-US$3.5 million last month. Stronger market Lower exports from Russia and the former Soviet republics have been due to maintenance, including to the 320,000 barrels-per-day (bpd) Mozyr refinery in Belarus and Rosneft’s 130,000-bpd Achinsk plant, traders said. While some of the facilities have returned from maintenance this month, they have not returned to full production capacity. Also, some straight-run cargoes have been drawn westwards to the US, as refiners sought cheaper alternative feedstocks in the face of high crude benchmarks, traders said. Reflecting the stronger market, fuel oil’s timespread structure has firmed since last week, as the market moved towards the June pricing month which started on Monday, with June/July rising to a three-week high of above US$4.00 a tonne on its first day as the prompt contract. Its cash differentials have also risen in tandem, with the 380-cst value rising for two straight sessions at consecutive three-week high premiums of above US$3.00 a tonne to Singapore spot quotes, as players bid for June-loading cargoes. “The market is gradually strengthening since the last days of the May pricing month, supported both by fundamentals and Brightoil’s ongoing bull play,” another trader said. “The million-dollar question is how far will it go. There’s still a lot of inventories in the system from the heavy March-May inflows and demand hasn’t been grade because of the high-price and volatile market environment.” Singapore stock levels have been high, at more than 20 million barrels (3.1 million tonnes) for the past six weeks, on the back of six-year high volumes of 4.3 million to 4.4 million tonnes between second-half March and first-half April, and followed by an above-average 3.2 million to 3.3 million tonnes for this month. Most of the June-arrivals are from the Caribbean, including up to four VLCCs of PetroChina’s regular offtakes from Venezuela, all of which are headed for Singapore, unlike in May, where four of six were bound for Hong Kong and China. Most of the remaining barrels are from Europe, including the ARA region, the Baltics and the Mediterranean. Fixing activity for July has also started, with 1.4 million to 1.5 million tonnes seen booked so far, mostly from the Caribbean, while the latest booking was the VLCC Vega Star, loading on June 8 from Rotterdam, by Russia’s LUKOIL. — Reuters

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