Most Singapore oil product prices would face pressure this week from rising supply and thin demand, while an open arbitrage window to the United States could support jet-kerosene fuel.
Traders of high sulphur fuel oil (HSFO) said prices would remain under pressure but they were hopeful for improved prompt demand from China and Vietnam.
"The summer season will see a return of stable demand from China. Buyers are still waiting this week, but they should come back soon," a Singapore-based trader with a Japanese firm said.
Official data showed Singapore's onshore stocks bubbling at 42 percent over the same period last year after a slight draw of 167,000 barrels trimmed them to 12.103 million barrels in the week to June 30.
Supplies could rise if European traders take advantage of the widening prompt July West/East swaps price spread and ship their surplus HSFO barrels to Asia.
The spread, which approached $30 a tonne on Friday, is nearly sufficient to cover high freight and blending costs. It had prompted US refiner/trader Koch to provisionally book the 275,000-tonne Front Chief, for mid-July loading from the Baltic to Singapore.
"The arbitrage is not wide open because of high freight, but if the spread gets $10 wider, we could see more fuel oil coming this way," a Singapore-based trader at a Western firm said.
Continued high supply and slack prompt demand are set to drag the product's discount to Dubai crude deeper into the negative, traders said.
The product was last valued at $5.30 below a barrel of Dubai, down from minus $5.05 on Friday.
Signs of support came from Vietnam, where demand was expected to rise during the summer months. Traders said surplus HSFO could be absorbed in the spot market by firms such as state-run Petrolimex, which is seeking 324,000 tonnes of HSFO via tender for July-October.
"They prefer to buy on a term basis, but are not averse to coming in to buy spot quietly," a Singapore based trader said.
The naphtha market is also likely to be flooded and many of the July cargoes could remain unplaced, traders said.
"(Naphtha) buyers are not coming out. There are a lot of supplies in the market," one trader said.
The product's July/August spread would mire in a contango, assessed on Friday at a steep 80 cents a barrel versus 70 cents.
"There is more supply than demand. The market is still bad," another trader said citing Indian supplies to the region.
Demand for gas will remain slack, while supplies would tip towards the heavier end of the scale, traders said.
"The situation is unchanged for gas oil. For cargoes loading in July and first half of August, demand will stay weak," said a trader.
Hong Kong's gas oil imports were cut sharply by a fishing ban in the South China Sea that would last until early August.
"China's domestic prices (gas oil) are not strong. So they are not importing much," one trader said.
Reflecting the dull sentiment, gas oil's crack spread over Dubai narrowed to $8.27 a barrel versus $8.45 early last week.
July regrade, or the price spread between jet-kerosene and gas oil, would stay strong thanks to the opportunity to ship jet fuel cargoes westwards. July re-grade held firm at $4.25 a barrel in favour of jet-kerosene. "The arb is open and the market will be strong for the time being," one trader said.
South Korea is exporting around 1.2 million barrels of jet fuel to the US West Coast in July, easing the abundant supply in Asia.
Gasoline prices could be steady, with the market looking for signs of support from the United States.
"The arb is closed for now but it depends on the US side," said a trader, referring to opportunity to move Asian cargoes westwards.