SINGAPORE: Asia's fuel oil markets firmed on Thursday with a narrowing of the 380-cst fuel oil market structure despite a 5.4 percent increase in inventories and the widening of the arbitrage window, industry sources said.
Time spreads of 380-cst fuel narrowed their discounts across the curve as far as the March/April monthly spreads on the Intercontinental Exchange (ICE), sources said.
The ICE 380-cst Dec/Jan time spreads were the most actively traded time spreads across the curve, trading a total of 550,000 tonnes.
The ICE Dec/Jan spreads were also the firmest across the curve, trading at a premium, or backwardation, of 50 cents a tonne to Singapore quotes by 1815 Singapore time (1015 GMT), sources said.
All other ICE traded 380-cst time spreads, from Nov/Dec up to May/June were trading at a discount, or contango, to one another.
This came as onshore fuel oil inventories held by up to 13 oil and oil storage companies in Singapore rose by 1.3 million barrels (or about 195,000 tonnes) to an eight-week high of 25.31 million barrels (3.78 million tonnes) in the week to Oct. 5, according to the latest official data.
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 WIDENS
Some traders were also puzzled at the widening of the East-West (EW) time spreads, allowing for further fuel oil supplies from the West to be shipped into Singapore.
The front month EW spread rose $1 to $22.25 a tonne on Thursday following weakness in Rotterdam fuel oil markets, traders said.
On Tuesday, EW spreads had reached a five-month high of $23 a tonne to Singapore quotes.
Fuel oil flows into East Asia for October have been provisionally pegged at 5.5 to 5.8 million tonnes, marginally below the previous month's volumes which were assessed at around 5.5 to 6.0 million tonnes, according to the latest analysis by Thomson Reuters Supply Chain and Commodities Research (TRSCCR).
"The robust flows are largely supported by improved Western arrivals which we have revised to around 4.0 to 4.2 million tonnes, up from our original assessment at the end of September," said Luke Pachymuthu, crude and fuel oil manager at TRSCCR.
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