Platts: West-Singapore May LSFO Arbitrage Flows Shrink


  • About 1.3 mil-1.4 mil mt of LSFO expected to arrive in May: traders
  • East-West spread widest in six weeks; arbitrage economics still unviable
  • Sluggish bunker demand likely to weigh on near-term Asian LSFO market

Singapore’s low sulfur fuel oil arrivals from the West are expected to shrink by a sizeable volume in May as shipping companies continue to avoid the Suez Canal amid ongoing attacks on ships in the Red Sea, thus rendering the arbitrage economics unviable, reports Platts.

LSFO arbitrage inflows shrink

Singapore — the world’s largest bunkering hub — is now expected to receive around 1.3 million-1.4 million mt of LSFO from the West in May, down from about 1.8 million mt scheduled for April, trade sources said in the week started April 29. Traders initially estimated April arrivals at around 2 million-2.2 million mt, S&P Global Commodity Insights reported earlier.

For May, I estimate about 300,000 mt lower Western LSFO arbitrage inflows than [those in] April. That is why we saw the spreads firm up a little so far this month… But a majority of these barrels will land [in Singapore] only by the third or fourth week of May,” a trader in Singapore said.

The West-East arbitrage window was partially open in the week ended April 26, but it has become unviable again this week, several traders said.

Platts assessed the spread between Singapore marine fuel 0.5%S cargo and FOB Rotterdam 0.5%S barge assessments, or the East-West spread, up 50 cents/mt on the day at $44/mt on March 26 — a level last seen on March 18, S&P Global data showed.

The Singapore marine fuel 0.5%S May-June swaps spread was assessed at $5.74/mt at the Asian close on April 29 — the widest backwardation for the prompt M1-M2 intermonth spread since March 13, when it was assessed at plus $6/mt, S&P Global data showed. The spread has widened by nearly 92% so far in April, according to the data.

May arbitrage arrivals should be tighter than [those in] April… But one thing about which we have to be cautious is that we went through a very weak period earlier in April. Now, traders will be looking to move some cargoes as they have been rolling on inventories. So, overall stocks for LSFO [in Asia] should be high [in the coming month],” another trader said.

The Singapore marine fuel 0.5%S cargo’s differential over the Mean of Platts Singapore marine fuel 0.5%S assessment, which flipped into premiums on April 17 after staying in negative territory for about two weeks, was assessed at a premium of $3/mt at the Asian close on April 29, S&P Global data showed. The LSFO cash differential was currently at its highest since March 4, when it was assessed at a premium of $3.37/mt, according to the data.

Although marine fuel cash premiums have garnered strength in recent sessions, traders said any major further upsides would likely be capped in the near term due to sluggish downstream bunker demand.

Meanwhile, in Europe, the 0.5%S marine fuel market remained weak amid stable demand and heaviness from a closed West-to-East arbitrage. However, bunkering demand has picked up over the past couple of weeks, market sources said.

Traders said that the low premiums of 0.5% in Singapore compared with those in Europe and continued disruptions within the Red Sea mean that the economics for this arbitrage remained unfavorable.

While volumes for this arbitrage were elevated in April, one trader said that the arbitrage opportunity appeared closed, citing the unfavorable economic conditions at present.

However, premiums for 0.5% in Asia have been rising over the past two weeks, in part due to weakening 0.5% FOB Rotterdam barges. One market source said that “low [VLSFO] stocks and operational issues in European refineries… will tighten things in Europe” within the short term.

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Source: Platts