June 30, 2010 at 2:07 pm #2602
Fuel Oil Glut in Singapore Widens Gap to Dubai: Energy Markets
By Yuji Okada and Yee Kai Pin
June 30, 2010 (Bloomberg) — Fuel-oil prices in Singapore, Asias biggest energy trading hub, may weaken relative to Dubai crude as imports from Russia, Mexico and the Caribbean drive up record stockpiles.
Deliveries to Singapore will rise as much as 20 percent next month from June to 4.2 million metric tons, according to a Bloomberg survey of seven traders from Singapore to Tokyo, who declined to be identified as they arent authorized to speak on transactions. The discount to crude may widen to $9 a barrel, the most in a year, from $5.53 today, the survey showed.
Fuel-oil imports into Singapore will remain steady in July, and probably in August, said Yasuhito Imaizumi, a Singapore-based trading manager at Petro Summit Pte, a unit of Sumitomo Corp., Japans third-largest trading company. I am expecting a hefty amount of imports in the first half of July.
Refiners are creating a glut of the heavy residue from processing crude as they boost output of gasoline and diesel. Singapores onshore stockpiles climbed to a record 25.7 million barrels on April 21, according to the Ministry of Trade and Industry.
Inventories swelled as production has outpaced a recovery in the shipping industry, the main user of 380-centistoke grade of fuel oil. 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 difference in price, or crack spread, between 180- centistoke grade and Dubai oil was zero as recently as Jan. 29. Since then, the discount to crude widened to as much as $8.84 a barrel on May 5 compared with an average $3.86 over the past 12 months.
Flagging demand in China, Asias biggest energy user, may increase Singapore inventories. The International Energy Agency forecast on June 10 that Chinese consumption of residues will drop 17 percent this year even as its demand for refined products climbs 7.9 percent.
Supplies from Russia may increase in July because of a reduced tax on fuel-oil exports, traders said. The duty is set to decline to $96.90 a ton on July 1 from $112.70 after prices for the countrys benchmark Urals crude fell, according to the Finance Ministry.
Russia needs to upgrade refineries to reduce the share of fuel oil produced from each barrel of crude, Vitol Group Chief Executive Officer Ian Taylor said last week in London.
BP Plc and Litasco, the trading unit of OAO Lukoil, Russias biggest non-state producer, hired Very Large Crude Carriers, or VLCCs, in Europe for delivery to Singapore, according to shipbroker reports. The Albutain Star, Kokkari and Marina M were each chartered for $4.5 million, according to reports from companies including Optima Shipbrokers Ltd.
Supertankers may also load fuel oil in July from across the Pacific Ocean. PetroChina Co. placed the Janah Star on provisional charter to sail to Singapore from the Caribbean, based on data from Clarkson Plc, the worlds largest shipbroker.
Supplies are rising with the shipments coming in and its bound to go into storage, said Victor Shum, senior principal at U.S. energy consultants Purvin & Gertz Inc. in Singapore. Bunker demand, even though its doing well, is not rising as rapidly.
Arbitrage traders are adding to the glut by moving cargoes of high-viscosity grades to Singapore from Mexico after state- owned Petroleos Mexicanos shut its Minatitlan refinery for maintenance in May. Increased imports of Mexican 1,000- centistoke fuel oil will sap blending stock, leaving more higher-centistoke product in the market. Refiners use blending stock to cut viscosity.
As the blending supply tightens, the premium in Singapore of 180-centistoke oil to 380-centistoke grade, known as the viscosity spread, may rise to as much as $15 a ton in July, the widest in 19 months, according to one of the traders in the survey, who declined to be identified because of company policy.
It is hard to believe the spread hasnt gained much yet, said Akira Kamiyama, a Tokyo-based trader at Mitsui & Co. It could widen to $10 a ton at any moment.
The gap narrowed to 25 cents a ton on June 1, the lowest since September 2009. Its at $6 a ton today, according to Bloomberg data.
–Editors: Jane Lee, Stephen Voss
To contact the reporters on this story: Yuji Okada in Tokyo at firstname.lastname@example.org; Yee Kai Pin in Singapore at email@example.com
To contact the editor responsible for this story: Clyde Russell at firstname.lastname@example.org
June 30, 2010 at 2:09 pm #5559
Update – Forewarned is Forearmed ….. According to this article a bright spot for crack margins/coker margins & feedstocks/heavy crude spreads could be growing from HFO Glut spreading out from Singapore.
It also sounds like it might revive some Russia/Asia/Mexico & other coking projects as impact feeds back to sources HFO without upgrading capacity.
Traders & Speculators are only getting wind of opportunity now – so look for change gain lot rapid momentum at any moment!
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