Limited availability of high sulfur fuel oil in Northwest Europe has kept the barge market in the region backwardated, while weak buying interest for bunkers has shown up a disconnect between the two markets.

Availability of fuel oil in Northwest European has been scarce on a plethora of factors including an active arbitrage to Asia, refinery maintenance and refinery upgrades, and this has been reflected by the backwardated spreads.
“I just do not think there is any oil around to sell,” a fuel oil barges trader said.

The backwardation on 3.5% FOB Rotterdam barges saw the October-November intermonth spread traded at $6.25/mt on ICE in the European afternoon Tuesday.

Some 530,000 mt was expected to depart Rotterdam in coming weeks for Singapore, on top of the 530,000 mt that has already departed the Dutch hub so far this month, compared with a total of 530,000 mt which sailed in September.

Strong demand in Singapore had pushed the spread between 380 CST Singapore cargoes and 3.5% FOB Rotterdam barges — the East-West spread — to multi-year highs on ICE over the past week as low imports into Singapore in recent months have cut availability in the region.

That boost to Singapore premiums has resulted in a surge in Suezmax fixtures as traders try to take advantage of the backwardation in both Europe and Singapore.

SLUGGISH PHYSICAL BUNKER MARKET
Despite the backwardation across the European HSFO market, physical bunker suppliers have been complaining about weak demand since mid-September.

While initially the weak spot bunker demand could be put down to the recent rally in ICE Brent futures as a result of global supply concerns because of impending US sanctions against Iran, ship owners still need to buy bunker fuel for their vessels.

Looking ahead, the installation of a coker at ExxonMobil’s 320,000 b/d Antwerp refinery means that the company is expected to stop offering RMG grade bunker fuel during October for the foreseeable future. Fuel oil traders estimate some 200,000 mt a month could be taken out of the market. The company did not confirm a date.

Physical bunker suppliers in the area, however, are waiting to see if this tightness from refinery upgrades will spill into the bunker market, although they said there are no issues with availability for now.

“I don’t see [tightness developing] to be honest,” a physical supplier in Rotterdam said, adding that “it’s almost impossible to predict the market for the near future.” When reduced offer volumes from Antwerp as a result of the upgrade come about this will result in a pick-up in demand at Rotterdam, a second physical supplier said.

On top of this, Shell said Monday that it had safely commissioned a new solvent deasphalter unit at its Pernis refinery in the Netherlands. The new unit, the first major investment at the site since 2011, will enable Pernis to “process a larger proportion of its oil intake into cleaner transport fuels, including marine gasoil compliant with IMO 2020.” This could also result in further tightness in the HSFO market.

With many refineries already having installed or planning to add cokers or other units to reduce their HSFO output, physical bunker suppliers are concerned about how much 3.5% bunker fuel will be available as they want to be able to serve vessels with scrubbers installed as well as the vessels looking for 0.5% sulfur fuel oil or marine gasoil, once a 0.5% sulfur cap on marine fuel comes into force in 2020.

Source: Hellenic Shipping News.