SINGAPORE: Time spreads in Asia's 380-cst fuel oil swaps markets firmed for a second consecutive session on Friday, in spite of data showing supplies were continuing to rise even though refinery maintenance was at a peak.
"Inventories are rising and arbitrage is flowing (to Singapore), yet spreads are strengthening," said a Singapore-based trader. "The opposite should be happening."
"It's been one of the most volatile weeks in a long time," said another Singapore-based trader.
Discounts of the 380-cst fuel oil time spreads across the curve narrowed on the Intercontinental Exchange (ICE) while the Dec/Jan and Jan/Feb contracts were trading at a premium of 25 cents and 50 cents a tonne to Singapore quotes, respectively, by 4.30 pm Singapore time (0830 GMT), industry sources said.
The Nov/Dec and Dec/Jan contracts in particular saw elevated trading volume of about 550,000 tonnes each, sources said.
This came in spite of rising fuel oil stocks in the Amsterdam-Rotterdam-Antwerp (ARA) oil hub.
Stocks of fuel oil held independently in the ARA rose 8 percent in the week to Thursday, Dutch consultancy PJK International said.
Fuel oil inventories in the ARA hub rose by 60,000 tonnes from the previous week to 838,000 tonnes in the week to Oct. 6. Last week, ARA fuel oil inventories jumped 31.4 percent to 778,000 tonnes.
That followed an increase in weekly onshore stocks of Singapore fuel oil, which rose 5 percent to an eight-week high of 25.31 million barrels (3.78 million tonnes) in the week to Wednesday.
In a market with ample inventories, the price of a commodity for future delivery tends to be above the price for immediate delivery, a structure known as contango. In a market with tight inventories, the price for immediate delivery typically trades above future prices, known as backwardation.
ARBITRAGE WINDOW
Rising fuel oil supplies in the ARA helped boost East-West spreads to multi-month highs, making arbitrage opportunities into Singapore "possible, but not cheap", a third trader said.
The front month East-West (EW) spread, the price difference between FOB Singapore 180-cst high-sulphur fuel oil and FOB Rotterdam barge fuel oil with maximum 3.5 percent sulphur, rose to a near five-month high of $23.25 a tonne.
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