* 180-cst refining margin to Dubai crude narrowest in nearly 5 yrs
* Demand/supply fundamentals bolster refining margins
* Refining margins also supported by weak crude prices
* Further upside potential seen as limited, traders say (Adds detail, graphics)
By Roslan Khasawneh
SINGAPORE, Nov 29 (Reuters) - Singapore’s benchmark 180-cst fuel oil refining margins settled on Tuesday at their narrowest discount to Dubai crude in almost five years on the back of robust seasonal demand, limited supplies and falling crude prices ahead of an OPEC meeting on Wednesday.
Refining margins for the benchmark 180-cst fuel oil have risen sharply this quarter, supported by supply issues in major producers like Russia and Venezuela as well as strong demand, said Nevyn Nah, oil products analyst at Energy Aspects.
In addition to the strong market fundamentals, traders said tumbling crude prices also contributed to the strengthening in fuel oil margins.
Singapore’s Dec. 180-cst fuel oil discount to Dubai crude narrowed by 11 cents a barrel on Tuesday to minus 38 cents a barrel, its narrowest closing discount since Feb. 1, 2012.
This came as crude oil prices fell on signs that key members from the Organization of the Petroleum Exporting Countries were struggling to agree a deal to cut production to reduce global oversupply.
Demand for fuel oil, used primarily as a marine fuel and feedstock in power generation, has been bolstered by a recovery in shipping demand as well as unusually cold weather in East Asia.
On the supply side, lower Western arrivals into Asia, particularly for the lower-viscosity fuels used to blend residual fuels into the 180-cst grade have stoked availability concerns, boosting overall fuel oil markets, including refining margins.
Despite the rally over the past few weeks, some industry participants are doubtful that the refining margins will continue to rise sharply.
“Our outlook for fuel oil is that right now it’s almost as good as it gets because if you lay down the supply and demand sectors, everything is all aligned,” Nah said. He also said that seasonal demand for marine fuels and power generation tends to taper off in the first quarter of the year, while supplies from the Middle East are expected to rise as refinery turnarounds tail off.
On Nov. 9, fuel oil margins briefly turned positive in intraday trading for the first time since Jan. 2012, when oil prices had tumbled as Donald Trump edged ahead in the U.S. presidential election.
Fuel oil is a residual product of the refining process and tends to trade at a discount to crude oil.
Reporting by Roslan Khasawneh; Editing by Jane Merriman