Singapore bunker sales surge 5.3% from January to July 2011

Singapore bunker sales are still healthy, up 5.3% y/y from January to July. FO arbitrage volumes into East Asia have not been able to keep up with the increase in demand, keeping the monthly y/y change of arbitrage volume inflows firmly negative, and further supporting Asian benchmarks.

Fuel oil from the Middle East could make up some of the deficit, with Reuters indicating that Iran’s October fuel oil exports may have returned to normal levels of 2.6mb or 0.08mbd (c. 400,000 tonnes). However, the supply-and-demand balances of China, South Korea and Japan show that the net deficit has been increasing, growing 14% y/y from January to July of 2011. This, coupled with a slight reduction in production while apparent demand stays stable, leads to an increasingly
short supply situation.

Despite South Korea’s 53-day forward supply of fuel oil in July, which is 30% higher y/y, we remain in the bullish camp and reiterate our forecast for Singapore FO180cst spreads to Dubai crude at an average of -USD 5/bbl in Q3-2011, which allows a 6% upside from the current Q3-2011 average. We also keep our Q4-2011 average unchanged at -USD 4.5/bbl.

We highlight that Singapore fuel oil onshore stock levels may rise near-term, after increasing by 1.35mb or 6.7% w/w to 21.5mb as of 31 August 2011. We believe that this will be partly because of the move to onshore storage on floating tankers situated along the southern Malaysian coastline. The seven floating oil storage facilities have a combined capacity of approximately 12.4mb of crude and fuel oil.