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Asia Fuel Oil-February Western arbitrage arrivals at 5-mth low
February 6, 2013 / 8:42 AM / 5 years ago

Asia Fuel Oil-February Western arbitrage arrivals at 5-mth low

SINGAPORE, Feb 6 (Reuters) - East Asia is expected to receive around 3.9 million tonnes of Western fuel oil in February, the lowest since September, according to a Reuters survey of traders and shipping brokers.

This is about 1.4 million tonnes, or 25.7 percent, lower than January’s shipments, the survey showed.

The lower volumes have lifted sentiment, with fuel oil’s prompt intermonth contango averaging around $2.65 a tonne so far in the pricing month of February, down from $3.25 the previous pricing month, Reuters data showed.

In a contango market, front-month prices are lower than those in the future, indicating a weaker prompt market.

However, demand for fuel oil is lacklustre ahead of the seasonal Lunar New Year lull, limiting gains in intermonth spreads.

“February is a short month and with the Chinese not buying much, the bunker market still weak, 4 million tonnes can be a lot of oil,” said a trader based in Singapore.

An imbalance in arrivals of lower and higher viscosity grade materials also saw the front-month viscosity spread falling below $5.00 for the first time in more than 2-1/2 years at the beginning of February.

The viscosity spread is the difference between the outright prices of 180-centistoke (cst) and 380-cst fuel oil, and acts as one of the indications of the blendstock balance in the market.

MARCH ARRIVALS AT AROUND 4 MILLION TONNES

Traders expect March arrivals to be steady at around 4 million tonnes, largely unchanged from February’s volumes as high freight rates are making arbitrage economics unattractive.

“The numbers don’t look appealing at the moment, freight has to be lower to make things work,” a second trader said.

Reflecting the weak sentiment, the East-West spread has been hovering below the $25.00-mark since the start of this month, Reuters data showed.

To date, around 4.1 million tonnes of shipments have been provisionally fixed to arrive in East Asia in March, with the window for additional fixtures still open.

Out of the total volumes, PetroChina’s bookings stood at around 1.1 million tonnes, making the Chinese trader the biggest lifter. (Reporting by Lee Yen Nee; Editing by Muralikumar Anantharaman)

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