Tight supply pushes Singapore 380-cst fuel oil cash premium to record

SINGAPORE (Reuters) - The cash premium for cargoes of 380-centistoke (cst) high-sulfur fuel oil (HSFO) in Singapore rose to a record on Tuesday, according to Reuters data, boosted by intense buying interest amid shrinking supplies.

The cash premium for 380-cst HSFO jumped to $30.88 per tonne to Singapore quotes on Tuesday, up from $23.09 a tonne in the previous session.

The latest record exceeds the previous high of $24.31 per tonne on July 11, one of the first signs of the impact of a shift in global ship fuel rules set to occur in 2020.

The cash premium has been boosted by increasingly tight Singapore supplies of HSFO ahead of a shift in global ship fuel rules set to occur in 2020, three Singapore-based fuel oil traders said on Tuesday.

The sources declined to be identified as they are unauthorized to speak to the media.

The International Maritime Organization has mandated that ships use bunker fuel with a sulfur limit of 0.5% starting in 2020 from 3.5% currently, meaning the supply of 3.5% HSFO will lose value at the end of 2019 as the market moves to low-sulfur bunker fuels.

This means regional refiners are producing less of the HSFO ahead of the switch.

Suppliers are also finding it unprofitable to ship in fresh cargoes of the fuel from amid a steeply backwardated market structure, the trade sources said. A backwardated market is one where prompt prices are higher than later-dated prices.

The backwardation means shipping fuel oil long distances will cause the cargo to lose value during the voyage.

The premium of the front-month 380-cst HSFO swap to the second-month swap, also known as time spread, widened to a near-record of $36.25 a tonne on Tuesday, up from $29.50 a tonne in the previous session, Refinitiv data showed.

The 380-cst front-month time was last higher on July 31 at $38.25 per tonne, Refinitiv data showed.

Reporting by Roslan Khasawneh; editing by Christian Schmollinger