- Front-month forward curves for Argus-assessed northwest European and US Gulf coast 0.5pc sulphur fuel oil intersect from December 2019 to January 2020.
- The northwest European curve moving into backwardation and the US Gulf curve moving into contango.
Based on front-month forward curves of 0.5pc sulphur fuel oil, NW European curve and US Gulf curve move higher and lower than the forward price respectively, reports Argus Media.
Europe-US Gulf forward curves
The snapshot of the Europe-US Gulf forward curves moves from $37/t premium in December to a $35/t discount in January, opening up the possibility for arbitrage between the two regions.
The northwest Europe-US Gulf front month curve discount then widens further, to $55/t in April 2020.
Freight rates analysis on the NW Europe – US Gulf route
Argus-assessed average monthly tanker freight rate on the northwest Europe to the US Gulf route has ranged between $7/t to $24/t for dirty petroleum cargoes sized 260,00t, 135,000t and 55,000t during the period January 2018 through August 2019.
Even at the higher range of the freight cost, the forward curve differential between northwest Europe and US Gulf is indicative of an open arbitrage between the two regions.
Fuel oil inventories in the Amsterdam-Rotterdam-Antwerp hub rose by 7pc in the week ending 5 September to 1.3mn t, the highest since January.
But the increase could be driven by higher storage of 0.5pc sulphur fuel oil ahead of 2020, because 3.5pc sulphur maximum fuel oil availabilities in the region have been tight.
Backwardation of forward curve
Stockpiling of 0.5pc sulphur fuel oil in northwest Europe is keeping the local 0.5pc sulphur fuel oil forward curve in backwardation from December 2019 through February 2020.
Similar to northwest Europe, the Singapore 0.5pc sulphur fuel oil forward curve is in backwardation at the beginning of 2020, reflecting stockpiling oil in Singapore.
Inventories of IMO-compliant fuel oil and blending products reached 2.9mn t in Singapore on floating storage vessels at the end of August, according to estimates by the oil analytics firm Vortexa.
The company estimates 17 VLCCs are used as floating storage for the product in Singapore.
Fuel oil arbitrage
The increased availabilities of 0.5pc sulphur fuel oil in Singapore could be enough to spur movements of low-sulphur fuel oil from Singapore to the US Gulf, according to one trader.
- Residual fuel oil arbitrage movements typically flow from the US Gulf and Caribbean to Singapore, but cargoes have made the reverse trip in prior times of Singapore stockpiling.
- Singapore 0.5pc sulphur fuel oil spot physical prices are expected by some to start to rise in April 2018, but only after the current stockpiling is exhausted.
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Source: Argus Media
