Fuel oil shipments to Singapore from Europe and the Americas may fall as much as 20 percent in August after the profits for such cargoes slumped 26 percent in July.
An estimated 3.2 million metric tons of the refining residue, used to generate electricity and power ships, are likely to arrive in Singapore this month, according to a Bloomberg News survey of seven traders in Singapore and Tokyo. That would be a three-month low, dropping from about 4 million tons in July.
“Supplies from Russia and the U.S. have not been fixed much for August delivery,” said Yasuhito Imaizumi, a Singapore-based manager at Petro Summit Pte, a unit of Sumitomo Corp., Japan’s third-largest trader. “This was caused by narrowing profit for arbitrage shipments.”
Profits for shipping from the West to Singapore, Asia’s biggest oil-trading and storage center, dropped in July, curbing the flow of cargoes. The average arbitrage profit, derived from the difference between fuel oil prices in Singapore and Europe with shipping cost, fell to $17.92 a ton in the second half of July from $24.27 a ton in the first half of the month, according to data compiled by Bloomberg.
Only one Very Large Crude Carrier was confirmed to sail in August to Singapore from Rotterdam, part of Europe’s independent storage hub with Amsterdam and Antwerp, based on a Bloomberg News survey of four shipbrokers. Three similar supertankers were fixed last month.
Vitol Group hired the Maersk Nautica to load 270,000 tons today, said Clarkson Asia, a unit of the world’s largest shipbroker. The Albutain Star and Arion were separately placed on provisional charter.
The discount of 180-centistoke high-sulfur fuel oil in Singapore to Dubai crude, the Asian benchmark, may be supported by reduced imports, according to the traders surveyed by Bloomberg. This crack spread measures losses for every barrel of residue produced when refiners make higher value products such as gasoline and diesel.
“The crack spread is becoming less sensitive to the status of supply-demand balance,” said Imaizumi at Petro Summit. “It is becoming more vulnerable to the price of crude oil.”
High oil prices typically encourage increased output from the Middle East, where crude is heavier and yields more fuel oil. New York oil futures reached a three-month of $82.97 a barrel on Aug. 4 before dropping 6.5 percent to trade at $77.60 at 2:04 p.m. in Singapore. They are still 21 percent higher than the year’s low on May 20.
Fuel oil’s discount to Dubai hit a record $30.46 a barrel in June 2008, a month before crude reached an all-time high above $147, according to data compiled by Bloomberg. The spread narrowed from $5.53 on June 30 to $2.94 on July 19 amid speculation imports will fall in August, said the traders. The discount was $3.74 yesterday.
Some August imports from Europe and South America will be of high-viscosity fuel oil of up to 700-centistoke, said the traders. The premium of 180-centistoke to 380-centistoke grade, known as the viscosity spread, rose to a 19-week high on Aug. 2.
“Increased high-viscosity cargoes, coupled with a shortage of blending stocks, may continue to support the viscosity spread in August,” said Akira Kamiyama, a Tokyo-based trader at Mitsui & Co., Japan’s second-biggest trading house.
Centistoke ratings measure viscosity when fuel oil is heated. Higher centistoke grades have a slower flow rate and require blending with lighter fuels for use in ship engines and power stations.
The drop in arbitrage activity also damped profits for shipowners such as AP Moller Maersk Group. Vitol’s charter for the Maersk Nautica was at $3.25 million, according to Clarkson. Supertanker rates for this route were about $4.25 million in July and as much as $5 million in June.
Fuel oil inventories at Rotterdam rebounded last week to 610,000 tons, consultant PJK International BV said. Onshore stockpiles of residual fuels in Singapore have fallen to a seven-week low of 20.63 million barrels, or 3.2 million tons, based on government data.