Singapore fuel oil narrowing contango may force traders to short stocks: sources

vlcc

The narrowing contango for Singapore Marine Fuel 0.5%S may compel traders to offload stocks, as monthly contango is not wide enough to cover their storage costs, sources told S&P Global Platts July 22.

The August/September spread for the Singapore Marine Fuel 0.5%S was assessed at minus 50 cents/mt on July 21, the highest since February 14, when the spread was assessed at minus 25 cents/mt, data showed.

“There is no point in stockpiling,” said a Singapore-based fuel oil trader.

“VLCC rates have dropped, and storing costs are getting lower. But the current contango does not make economic sense,” said a second fuel oil trader.

In contango, prices are higher for forward delivery dates than for nearer delivery dates.

The Rotterdam/Singapore VLCC rate dropped to $15.74/mt on July 2, the lowest since September 6, 2019, when it was assessed at the same level, before it edged up to $16.67/mt on July 21. The rate shot up to $66.67/mt on March 17, according to Platts data, when Saudi Arabia actively chartered VLCCs.

The cost of storing fuel oil in VLCCs is about $2-$3/mt a month in floaters, and that to store in landed terminals is about $5-$6/mt a month, both higher than the current monthly contango, market sources said.

There are high stocks of fuel oil around Singapore, traders said. Singapore inland residue stocks residue hit a three-year high of 26.666 million barrels on July 8, according to Enterprise Singapore data. It slipped 2.1% to 26.110 million barrels as of July 15, while market sources said the draw was not significant.

In addition, there is about 5 million mt of fuel oil sitting in VLCCs, floating around Singapore. The combined stocks will cover two to three months of bunker demand in Singapore, the sources said.

Meanwhile, the August/September time spread gained in recent days, supported by bargain hunting and lower inflow of arbitrage cargoes.

Singapore is expected to receive 1.5-2 million mt of low sulfur fuel oil from the West in August, down from 2 million mt in July, Platts reported earlier.

“It is getting more difficult to buy cargoes,” said a fuel oil trader.

The cash differential for the Singapore Marine Fuel 0.5%S rose to positive territory again on July 21, for the first time since July 2, assessed at 11 cents/mt, Platts data showed.

Source: Platts

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