European front-month high sulfur fuel oil paper crack spreads -- measuring the relative value of the product to crude oil -- hit a more than four-year high Monday, amid strong buying interest in the paper barge market, traders said.
December 3.5% sulfur FOB Rotterdam barge swap cracks moved to minus $9.05/b Monday, up by 69 cents on the day. The last time cracks were higher was on June 29, 2012, at minus $8.11/b, S&P Global Platts data shows.
According to traders, HSFO barge paper cracks strengthened on the prompt due to strong bids for inter-month barge spreads, pushing the November/December spread to a backwardation of $3.50/mt and bringing the December/January contango down by $1/mt to 50 cents/mt.
"Some of the strength is linked to the [open] arbitrage as well...people are hedging cargoes," one paper trader said.
Another view taken by other traders suggests that low inventories in Asia and Europe may be playing a big part in the stronger cracks.
"Inventories are low in Asia and Europe, and paper prices are the result of balance of buying and selling, so think current situation is reflective," said another fuel oil trader.
On the physical HSFO side, although cracks have risen in line with paper cracks, fundamentally little has changed, sources said.
"The high cracks are mostly paper related, a lot of traders taking long positions on paper...nothing particularly strong on the physical side though," said a fourth fuel oil trader.
"There is buying interest in the market at good levels, but no one is screaming for oil," one trader said.
