An unprecedented 1 million tons of November-loading fuel oil have been sold or offered in less than two weeks, mostly by refiners based in Saudi Arabia and India that are cashing in on a strong East Asian market, traders said.
Cash premiums and prompt timespreads have surged for more than a month, a trend that has not shown any signs of stopping, traders said. The premium for bunkers grade 380-centistoke (cst) grade has soared to an all-time high of $14.50 a ton.
“I have never seen this much volume being offered in such a short time in all my 15 years in the industry. But it doesn’t really come as a surprise, given how crazy prices have been, especially in the past week or so,” a Singapore-based Western trader said.
“Especially now, because demand is coming off in the Middle East. Bunker prices there are dropping big-time and are now $10 below Singapore ex-wharf prices.”
Most offers have come from Saudi Aramco, which has offered or sold 500,000 to 550,000 tons, and Indian refiner Essar Oil at 300,000 tons.
Despite the heavy volumes, most of the cargoes were transacted at six-year high price levels, irrespective of whether they were low-density, low-viscosity lots or high-density, high-viscosity parcels.
Aramco and its joint-venture partner ExxonMobil sold three 90,000 ton lots of high 700-cst viscosity cargoes, all for loading Nov. 5-15 from the Samref refinery at discounts of $10-$11 a ton to Singapore spot quotes on a free-on-board (FOB) basis.
Aramco also sold two 180-cst lots of up to 80,000 tons each, for loading end-October and end-November from a joint-venture plant in Jubail to oil major Shell at high premiums of $13-$15 a ton to spot quotes, FOB.
Essar, which is in the midst of upgrading the complexity of its refinery, which will eventually lead it to halt fuel oil exports, has offered or sold 300,000 tons of on-specification 380-cst so far.
“Essar is the surprise as it had already been winding down its fuel oil exports due to the upgrading, which required parts of the refinery to be shut,” another trader said.
“They offered the entire 300,000 tons in about a week for relatively prompt loading dates. They must have had inventories that were meant for other purposes and were diverted for exports due to the strong margins.”
Rising East Asian market
Most of the cargoes are expected to land in East Asia, particularly given its current price disparity to the Middle East, although most of the buyers have trading presence in both regions.
The East Asian market has risen unabatedly since the start of the October pricing month, more than a month ago, lifted fundamentally by a lack of on-specification barrels among the month’s heavy Western arbitrage arrivals of above 4 million tons.
November Western inflows are similar, with 4.0-4.1 million tons of mostly high-density, high-viscosity cargoes booked for arrival into East Asia, keeping the product's physical differentials and prompt timespreads at high levels for a second straight month.
Premiums for both the 180-cst and 380-cst grades have been above $10 a ton to spot quotes for more than two weeks and were valued at above $12 and $14, respectively, at the Asian close on Thursday.
Its front-month timespread have held above a backwardation of $8 a ton since end-September, closing at $10.00 on Thursday on the back of an inexorable four-session spike, while premiums for ex-wharf bunkers have held above $10 over the same period.
“While fundamentals are the basis for the strong market, pricing interests have taken it to the extremes that it has been in over the past two weeks or so. Everyone is trying to keep the market at current strong levels for long as they can,” a third trader said.
“But it is unsustainable, especially now with the huge Middle East volumes to match the big Western flows. When it falls, it will be drastic. I wouldn’t want to be the one left holding the ball at that time.”