Asia Fuel Oil-Weak on cooling China demand, eye on arb

Fri Sep 28, 2012 7:07am EDT

SINGAPORE, Sept 28 (Reuters) - Shrinking demand for fuel oil in China
weighed heavily on the Asian fuel oil market on Friday, while heavy arbitrage
supply flows into Asia were expected to further depress prices.
    Buying interest from China has been badly hit by slowing industrial and
manufacturing activity. A key use of fuel oil in China is as a feedstock for
small and medium sized refiners, who process the residual fuel for its gas oil,
which is then sold of to industries for power generation.
    After three decades of breakneck development that saw annual growth average
of 10 percent, China's government is now trying to steer growth lower to
complete structural economic reforms.
    China's slowdown has largely been attributed to the flailing global economy
which has sapped overseas orders for exports from China's vast factory sector.
    "It's a ripple effect, less diesel requirements the less need for production
and so no need to buy as much fuel oil to process, either way if we see China's
growth staying around 5-7 percent going forward then possibly their requirements
for fuel oil will be impacted," a trader said.
    Traders are anticipating the refiners to purchase around 1-1.2 million
tonnes of fuel oil in October down from about 1.8 million tonnes in September.
    Lower purchase volumes are compounded by higher arbitrage flows which are
being pegged at around 5 million tonnes.
    "I'm not sure the market has the capacity to absorb all this oil, let's see
if the easing flat price can help stir up some interest," a trader said.
    Fuel oil's October refining margin widened 13 cents to a discount of $6.78 a
barrel to Dubai crude, weakest in nearly six months, according to Reuters data. 
 
    
    * TENDERS:
    - India's Mangalore Refinery and Petrochemicals Ltd sold 80,000
tonnes of 380-cst, for Oct. 28-30 lifting from New Mangalore, to Shell at a
discount of $3.00-$4.00 a tonne to Singapore spot quotes, on a free-on-board
(FOB) basis.   
    
    * CASH DEALS: Three deals
    - Vitol purchased a 20,000 tonne cargo for loading October 24-28 at a
premium of $1.25 a tonne to the Singapore benchmark.
    - BP purchased a 20,000 tonne cargo for loading October 20-24 at a premium
of $1.25 a tonne.
    - Hin Leong purchased a 20,000 tonne cargo for loading October 22-26 at a
premium of $2.25 a tonne.
    
 CASH ($/T)             ASIA CLOSE  Change  % Change  Prev     RIC
                                                      Close    
 Cargo - 180cst             668.90   12.95      1.97   655.95  FO180-SIN
 Diff - 180cst                1.30    0.15     13.04     1.15  FO180-SIN-DIF
 Cargo - 380cst             657.40   12.70      1.97   644.70  FO380-SIN
 Diff - 380cst                2.20    0.20     10.00     2.00  FO380-SIN-DIF
 Bunker (Ex-wharf)-         654.00    4.00      0.62   650.00  BK380-B-SIN
 380cst                                                        
 Bunker (Ex-wharf)           -3.40   -8.70   -164.15     5.30                 
 Premium                                                       
                                                                              
 SWAPS  ($/T)           ASIA CLOSE  Change  % Change  Prev     RIC
                        (0830 GMT)                    Close    
 Brent M1                   112.59    2.20      1.99   110.39              
 180cst M1                  668.13   13.00      1.98   655.13                
 180cst M1/M2                 2.88    0.25      9.51     2.63                
 180cst M2                  665.25   12.75      1.95   652.50                
 Visco M1                    12.38    0.38      3.17    12.00                
 Visco M2                    12.63    0.25      2.02    12.38                
 380cst M1                  655.75   12.62      1.96   643.13                
 380cst M1/M2                 3.13    0.13      4.33     3.00                
 380cst M2                  652.63   12.50      1.95   640.13                
 Cracks 180-Dubai M1         -6.78   -0.13      1.95    -6.65                
 Cracks 180-Dubai M2         -6.64   -0.13      2.00    -6.51                
 East-West M1                35.50    0.00      0.00    35.50             
 East-West M2                36.50    0.50      1.39    36.00             
 Barges M1                  632.63   13.00      2.10   619.63               
 Barges M1/M2                 3.88    0.75     23.96     3.13                
 Barges M2                  628.75   12.25      1.99   616.50               
 Crack Barges-Brent M1      -15.86   -0.32      2.06   -15.54                
 Crack Barges-Brent M2      -15.40   -0.11      0.72   -15.29                
 
    

 (Reporting by Lee Yen Nee and Luke Pachymuthu; Editing by William Hardy)
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