Singapore oil product prices are expected to be firm this week, driven by tight supply and held up by strong global crude levels, traders said on Monday. The fuel oil market is thin on Chinese-specification 180-centistoke (cst) supply due to a shortage of low-density materials, which could drag till late April. "Simply put, there are not enough low-density cargoes coming in and they are too expensive to make, given the high gas oil prices," a Singapore-based trader said.
"Even at premiums of above $6 a tonne, FOB (free-on-board) for Chinese-specification cargoes, suppliers won't sell. The blending economics simply don't make sense with gas oil at above $60 a barrel."
Typically, low-density barrels are either imported directly from a supply source, usually Saudi Arabia or Iran, or blended down from Western arbitrage cargoes using low-density components such as gas oil.
With refineries in the Middle East undergoing scheduled turnarounds and facing traditionally firm domestic demand in the second quarter, the volumes of low-density barrels making their way here are reduced.
In early trade on Monday, fuel oil swaps for April were valued around $243.75 a tonne, up from Friday's Asian close of $240.65.
However, the price spread between 180-cst and 380-cst is set to widen due to steady supply of high-viscosity barrels, which are mainly channelled into the marine fuels market.
BP Singapore had pushed up 380-cst prices all month, narrowing the spread between the two grades to a low of $1.50 a tonne, compared to the average February value of $8.25.
Prices for 380-cst have also hit record-highs in eight of the last nine trading days, hitting a peak of $236.15 a tonne on Friday.
"The upside of 380-cst levels is limited. Prices have already gone way beyond the retail bunker market's ability to sustain. It cannot go on like this for much longer," a Western trader said.
"BP has been pushing 380-cst prices all month and it's unlikely that they will do it for much longer. When they withdraw their support, 380-cst prices will probably ease."
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