Asia/Pacific News
No Growth in Singapore Bunker Market, Poor Demand Outlook Herald "Fundamental Change" to Asia Fuel Oil Market
The latest analysis from Thomson Reuters points to Singapore's stagnant marine fuels market and a poor demand outlook as amongst the factors causing a "fundamental change" in the Asian fuel oil market, Commodities Now reports.
Last month Ship & Bunker reported Singapore saw record fuel oil trades in June of almost 6 million metric tonnes (mt).
But Thomson Reuters says the oil's capital outlay of about $2.1 billion far outweighed the return on profits - the second time in two years a massive capital expenditure has yielded modest results.
Researchers consequently identified various factors contributing to less than stellar June results, including many investment banks undertaking speculative trading due to the lack of liquidity in traded volumes of fuel oil derivatives, as well as cheaper alternative feedstocks causing decreasing demand from small and medium sized refiners in China.
The team also cited a poor demand outlook in Asia with no growth in the Singapore marine fuels market, which is still by far the world's biggest but has been flat at around 42 million mt for the last three years and looks on track for a similar result this year.
Thomson Reuters found that Asia fuel oil traders have had to "exponentially expand physical volumes over and above regularly traded flows" in order to create momentum on the trade – and this in turn has put strain on support infrastructure.
Yaw Yan Chong, oil research & forecasts director at Thomson Reuters, concluded that the fuel oil trading community and storage operators are operating in an increasingly challenging environment.
He added: "A year ago, we said that the fuel oil market was headed for a fundamental change in the way that it trades and makes money; we are more reinforced in this belief after the lessons of this June."
The prediction comes on the heels of traders in June reportedly scrambling for quick sells after Singapore's fuel oil inventory hit its highest level in over 15 years.
