Glencore in Singapore fuel oil spree as cargo premium slumps

[SINGAPORE] Glencore Plc has bought more than 1 million metric tons of fuel oil in Singapore this month as prices tumble from a record premium in the world's biggest bunker market.

The company has purchased at least 925,000 tons of 380- centistoke fuel oil and 140,000 tons of the 180-centistoke grade so far in June as part of the market-on-close price assessment process operated by Platts, a unit of McGraw Hill Financial Inc. Glencore's cargoes, loading this month and in July, account for about 36 percent of the total transacted volume of 2.95 million tons, data provided by Platts show.

Francis de Rosa, a Sydney-based spokesman for Glencore, said on Tuesday the company declined to comment.

Under the Platts process, traders report bids, offers and deals through e-mails, instant messages and phone conversations in a defined period each day, which are then used to create end- of-day price assessments for various commodities and used as benchmarks for transactions around the world.

"It's the high volume of cargoes traded recently that has caught the market's attention," Harry Tchilinguirian, the London-based head of commodity markets strategy at BNP Paribas SA, said by phone. "The fuel oil inventory data in Singapore indicates very ample supplies."

Singapore's onshore stockpiles of residual fuels, including fuel oil, rose to a record in the week to June 3, according to International Enterprise, a unit of Trade and Industry Ministry. The city-state is the world's largest port for bunker, or ship fuel, with sales of about 42 million tons in 2014, data from the Maritime and Port Authority show.

Contracts for 180-centistoke fuel oil in June cost US$17.75 a ton more than July supplies on May 22, a record premium, or backwardation, according to data compiled by PVM Oil Associates Ltd. since 2006. Near-term cargoes have now slipped to a $2.50 discount, or contango, to shipments for later delivery, the London-based broker said.

The contracts for 380-centistoke fuel oil have also dropped into contango. The cost of June supplies were $14 a ton higher than those for July on May 28. Near-term shipments are now at a $2.50 discount to later deliveries, PVM data show.

PetroChina Co was among the other buyers on the so-called Platts window this month, picking up 30 shipments totaling 666,000 tons, according to Platts. Mercuria Energy and BP Plc purchased 31 and 15 cargoes, respectively. Sellers included Vitol Group, OAO Lukoil, Royal Dutch Shell Plc, Total SA and Gunvor Group Ltd.

An expected expansion in demand from the Middle East for fuel oil used in power plants may be one of the reasons behind the rise in purchases, according to BNP's Tchilinguirian.

Electricity consumption typically jumps in the Middle East during summer months as the use of airconditioners increases. The high temperature in Dubai in the United Arab Emirates on June 18 is forecast to be 42 degrees Celsius, 6 more than the historical average, according to AccuWeather Inc.'s website.

The total volume of fuel oil traded as part of the Platts process in Singapore since June 2 is more than the combined amount for the previous two months, data compiled by Bloomberg show.

Buying and selling of larger-than-normal positions in the Platts window has occurred in other physical markets. China National United Oil Co, the trading unit of the country's biggest energy company, in April purchased an unprecedented 27.5 million barrels of Middle East oil, breaking its own record from last year.

In June 2013, BP, Glencore and PetroChina bought a total of about 2.6 million tons of fuel oil on the window.

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