SINGAPORE: Asia's fuel oil crack for benchmark 180-centistoke was at its narrowest discount to Dubai crude in more than four months at $6.02 a barrel on Tuesday, lifted by fewer Western cargoes arriving into East Asia next month and tightening producer exports.
Fewer cargoes are expected to arrive into East Asia in July from the West as a result of a tightly shut arbitrage window throughout the second half of May and the first half of June, as well as fewer exports of the residual fuel from key producers such as the Arabian Gulf, Russia and Venezuela, traders said.
"Strength, in an otherwise rather weak refined product crack environment, can be found in fuel oil markets," said JBC Energy in its daily market report on Tuesday.
While fuel oil cracks in northwest Europe have moved to the strongest seasonal level in at least 5 years, "the crucial Singapore market has also seen cracks rallying from early June readings of around minus $10 per barrel to minus $7 per barrel, and in spite of overall elevated onshore stock levels," JBC said while adding that the strength in
fuel oil markets could be sustainable, especially if demand continues to surprise to the upside.
In addition to the improved fuel oil margins, the lower arbitrage inflows into East Asia will help sellers clear excess supplies that had built up in Singapore in March and April following this year's latest trading play in March, traders said.
Onshore Singapore fuel oil stocks had risen to a record high of 31.18 million barrels in the week to June 1, surpassing the previous record of 31 million barrels set just three weeks prior, official data showed.
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