Asia's Nov fuel oil arbitrage flow from West to slip - trade
SINGAPORE Oct 14 (Reuters) - Asia's fuel oil imports from the West may fall in November versus this month as refineries in Europe and other exporting markets have yet to come back online from maintenance, reducing supplies, a survey of traders and shipping brokers showed.
The fall may strengthen an already firming Asian fuel oil market, where the difference between November and December swap prices surged to a 16-month high at $5.87 a tonne last Thursday on worries of lower-than-expected arbitrage arrivals amid stronger regional demand.
Traders have lowered their estimates, from 3.6-3.8 million tonnes, to level or lower than October's count of 3.61 million tonnes last week as cash premiums in Asia were not enough to cover freight costs.
"The arbitrage window still looks closed," said a Singapore-based trader at a Western trading house.
Singapore's cash premiums have to be at least $5 a tonne higher than the current level for the arbitrage to work, sources said.
About 2.68 million tonnes of fuel oil have loaded and are headed towards Asia, Reuters shipping data showed.
Up to 940,000 tonnes that were initially fixed have yet to be loaded, and the November arbitrage count may take a dent further if delays push these shipments into December or if economics are too poor to move the cargoes eastwards.
This includes two very large crude carriers (VLCCs) and three Suezmaxes.
Cosbright Lake, a VLCC chartered by PetroChina for a voyage originally into Singapore, had also changed its course further up north into Qingdao and may slip into December's count, Reuters shipping data showed.
European refineries are paring runs and are not switching fully online from maintenance because of weak profits from processing a barrel of crude amid a huge surplus of fuels such as gasoline. That, in turn, has reduced fuel oil supplies that would have typically shipped to Asia.
Europe's refinery margins have been in the doldrums, and the market is not sure if refiners there will maintain run cuts or deepen them further, said a Western trader.
Trade sources said that any new fixtures reported from now will likely only arrive from late November.
"European arbitrage should arrive from December onwards," said a second Singapore-based trader.
Asia is expected to receive 3.61 million tonnes of fuel oil arbitrage volumes in October, 200,000 tonnes short of initial expectations, a similar survey showed.
While this was 1.14 million tonnes - or 42.7 percent - higher than estimates for September, it was still over one million tonnes below the monthly average of 4.643 million tonnes this year.
Slimmer arbitrage volumes had led to a rally in cash premium for the 380-cst fuel oil grade, which hit a 20-month high on Oct. 4 at $8.67 a tonne, the highest since Feb. 10, 2012.
October's actual volumes are down as one VLCC, Sifa, chartered by Westport for a Caribbean-Singapore voyage, will now arrive in November. (Reporting By Jane Xie, editing by Manash Goswami and Subhranshu Sahu)