Fuel oil traders in Asia are paying the lowest premium in six months for the earliest deliveries as sliding freight rates boost supplies from the West.
April swaps for 180-centistoke fuel oil in Singapore, the regional benchmark grade, cost 52 cents a metric ton more than May shipments this month, the least since September, data compiled by Bloomberg show. The front-month contract swung to a discount, or contango, last week for the first time in three months, indicating weakening demand or abundant availability of supply. Prompt cargoes may trade at a 92 cent premium on average in the second half of March, according to the median of five estimates in a Bloomberg News survey of analysts and traders.
Charter rates for hauling fuel oil from Europe to Asia are at the lowest since October, according to Ehsan Ul-Haq, a senior market consultant at KBC Energy in Walton-on-Thames, England. While the drop in shipping costs is bolstering flows to the east, sales in Singapore of the marine fuel known as bunker slid to the least in a year last month.
“The fuel oil market in Asia will be under pressure until the end of March from elevated inflows from the West,” said David Wech, the managing director at JBC Energy GmbH, a consultant in Vienna. “Traders are working through stocks as freight rates have become more favorable.”
Front-month fuel oil swaps traded at a premium of $1 a ton to second-month contracts at 4:28 p.m. Singapore time, the data show. That’s almost half the spread of the previous trading day.
Fuel oil is used in everything from ships to power plants. Supplies scheduled to arrive in Asia this month from the West rose to 3.45 million metric tons, the biggest quantity since November and 38 percent higher than in February, data compiled by Bloomberg from shipbrokers and traders show.
Rates for very large crude carriers, or supertankers that can haul a cargo of 2 million barrels, sailing from North West Europe to Asia are at 35 industry-standard Worldscale points, the lowest since October, KBC’s Ul-Haq said.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.
The Baltic Dirty Tanker Index, a broader measure of shipping costs including vessels smaller than VLCCs, rose 0.4 percent to 679 on March 14 and is down 33.5 percent this year.
At least 21 tankers, including six very large crude carriers, or VLCCs, have been booked to carry fuel oil from the U.S., Europe and the Caribbean to arrive in Asia this month, according to shipbrokers including Poten & Partners and information from traders. April arrivals were at 3.51 million tons as of March 12.
The price of 380-centistoke ship fuel in Singapore was unchanged at $600 a ton on March 14, up 0.2 percent this year, according to data compiled by Cockett Marine Oil Ltd., a Dubai-based supplier.
Sales of marine fuel dropped to 3.28 million tons in February in Singapore, the world’s largest bunkering port, according to the city-state’s port authority. That’s the least since February 2013 and down 8 percent from January.
“The bunker market send some weakening signs recently and trade statistics from China also appear to confirm the soft patch for bunkers,” said Wech at JBC.