SINGAPORE: Fuel oil's prompt May/June inter-month premium was being valued at close to a 12-month high in intra-day trade on Wednesday, due to mounting concerns over thinner Western arbitrage supplies arriving in Asia in June, traders said.
Traders estimate that fuel oil supply flows from Europe and the Americas arriving in Asia are now at around 4 million tonnes, which is about 16 percent below the year's monthly average of around 4.75 million tonnes.
"I don't expect to see much more getting fixed for the East in the next week or so. The window is going to close pretty soon and then we are already turning our attention to July," a Singapore-based trader said.
On Tuesday, the inter-month premium settled in Asia trade at $6.50 a tonne, which is more than $11 firmer than levels seen at the start of the year, Reuters data showed.
Reflecting the stronger sentiment, fuel oil's East-West (EW) spread, the differential between Asia and European fuel oil prices were $6 a tonne firmer at $33.75, versus levels seen in early April, Reuters data showed.
"There's a lower output of fuel oil coming from West largely also due to seasonal refinery maintenance, so that has contributed in some way to support in the market as well," a trader based in the Middle East said.
It is estimated that in the United States alone, nearly 1 million barrels per day (bpd) of refining capacity was offline due to maintenance in the first quarter. This was well above the five year average of 550,000 bpd.
Asia's fuel oil market had been experiencing pockets of supply tightness since early April due to a lack of high quality, low density fuels for blending.
This has also kept cash premiums relatively well supported. The benchmark 180-cst differential, which hit $5.50 a tonne on Tuesday's close, has risen $1.50 from levels seen in mid-March, and are about $4 over levels seen for the same period a year ago, Reuters data showed.
"Between a thinner arb, and a lack of blending materials which is starting to be the recurring theme of 2013, we should see the fuel oil market maintain these levels at least for the medium term," a Singapore-based trader said. (Reuters)
