Rotterdam physical high sulfur fuel oil is trading at the widest discount to HSFO swaps in 15 months on the back of plentiful supply in Europe, because of a closed arbitrage window to Asia and weak demand for bunker fuel, sources said Friday.
The discount of physical 3.5% HSFO to front-month swaps widened further on Thursday to be assessed by Platts at $3.25/mt, a level last seen on December 15, 2010, when it was assessed at $3.75/mt.
Traders in Northwest Europe said that healthy supply from the Baltic Sea and limited buying interest in Singapore -- the main export outlet for fuel oil -- has weighed heavily on the European HSFO complex this month.
"Fuel oil market in [Europe] is pretty weak. HSFO premiums in Singapore are relatively depressed due to lots of oil availability there," a swaps trader said.
The trader added that he didn't expect Singapore HSFO premiums "to recover" anytime soon as market fundamentals were still bearish for a potential change in current market structure.
"It looked like it was going to the roof and all of a sudden it has changed, buyers have now become sellers and there is lots of fuel on offer in Europe and no outlet to Singapore," another trader said.
Traders said that, on top of the closed arbitrage, the Northwest European market was being hindered by weak demand for bunker fuel as a large number of shipowners were wary of fixing at an all-time high price for 380 CST HSFO in Rotterdam, sources said.
On Tuesday, Rotterdam high sulfur 380 CST bunker fuel was assessed at $727.50/mt, the highest level since Platts records for the product began on January 2, 1990. This exceeds the previous record high of $726/mt on July 11, 2008, during the oil price spike of that year.
The rise in outright HSFO prices has mainly been tracking increases in ICE Brent crude futures contracts, which rose earlier this week on better-than-expected German economic data, and news that China's apparent oil demand hit a record 9.75 million b/d in February, sources said.
