Singapore’s bullish bunker sales of shipping oil hit record high in June

We are optimistic that H2-2011 shipping activity will remain healthy, thereby supporting fuel oil spreads to crude. However, we note that Singapore’s H1-2011 bunker sales came in at 21.6mt about 6% less than half of the 45mt that the Maritime Port Authority of Singapore forecast for 2011 sales. So if bunker sales are to reach the level the MPA expects, they will have to pick up further in H2-2011 and show a 11.7% increase in H2 over H1 to reach an average of 123.3ktd for 2011.

Closer analysis of the release shows that June sales of marine fuel oil 380 centistoke (MFO380cst) grew the most last year, up 12.5% to 101ktd – accounting for about 80% of total bunker fuels sold. On the flip side, sales in MFO180cst fell 32% y/y, but were still up 12% m/m to 4.7ktd or one-twentieth the volume of MFO380ct.

This highlights one of the challenges in assessing the Singapore market - MFO180cst isthe predominant paper benchmark but the vast majority of the physical deals are done in MFO380cst, so the market players have to bear the basis risk in some form. This is unlikely to change and is a dynamic that has implications for forecasts, given that we quote in the predominant benchmark: MFO180cst against Dubai crude.

Adding to the bullish undertone is the expectation that bunker sales in the bonded market will increase by 20% to reach 10mt in 2011 – a new high, according to Bunkerworld. Chinese foreign trade cargo throughput reached 1.1 billion tonnes, up 8.2% y/y for January-May, according to data from the Ministry of Transport. This data takes into account cargo traded at the country’s large ports. This upbeat outlook is tempered somewhat by our equity colleagues’ view of a challenging Q3-2011 throughput outlook for PRC ports.

We remain marginally bullish on fuel oil in the near term despite unusually high Iranian fuel oil exports. We are encouraged by a recent report that both NOL Group and Maersk Line will together add 20 ‘largest-ever’ vessels to their individual fleets with the intention of capturing a larger market share of the lucrative Asian-European trade.

Also supporting fuel oil fundamentals is Mexico’s increased use of fuel oil for electricity production; this has been pulling fuel oil cargoes which would, in normal circumstances, be bound for East Asia. Lastly, increased Japanese usage due to the continued nuclear power plant shutdowns is providing support.