SINGAPORE: Asia's fuel oil crack for the benchmark 180-centistoke fuel oil slid to its widest discount to Dubai crude in over a month, in what traders view is a market correction from an 'overbought' situation over the past few weeks.
"I think its more because the cracks were way too high to begin with, and even now they are not that weak historically speaking," said a Singapore-based trader.
"It's more of a correction of an overbought situation," the trader said.
Throughout the third quarter of the year, limited arbitrage volumes had placed a downward pressure on supplies, boosting fuel oil cracks to their highest in about eight months on Sept. 20.
Since then, Western arbitrage volumes have improved, but still remain below their yearly average, along with Middle Eastern flows as cooling demand in the summer months there eases.
However, this recovery in arbitrage flows alone is not substantial enough to weigh down on the market, industry sources said.
"Arabian Gulf flows are up slightly but only to normal levels at one million tonnes or so," said another Singapore-based trader.
The 180-cst crack to Dubai crude fell for a sixth consecutive session to minus $5.76 on Tuesday, down 7 cents from the previous session.
Since the start of the year, front-month fuel oil cracks have averaged minus $6.4 a barrel and minus $5 a barrel in the third quarter.
The weaker market was also reflected in the time spreads of the 380-cst fuel oil as a result of consumer hedging in 2017 and 2018 as well, industry sources said.
The Nov/Dec time spreads of 380-cst fuel was trading 50 cents lower from the previous session on the Intercontinental Exchange (ICE) at a discount of 75 cents a tonne to Singapore quotes by 1710 Singapore time (0910 GMT).
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