Fuel oil liquidity hit by OW collapse as sellers withdraw credit

[SINGAPORE] Fuel oil trading activity has slowed sharply in Singapore in the wake of the collapse of the world's biggest supplier, with sellers withholding credit and demanding guarantees of payment from customers, traders said on Thursday.

The bankruptcy of Denmark's OW Bunker, filed last Friday, has not only sent buyers scrambling for new stocks, but also caused sellers to tighten their credit policies to the extent of offering no credit at all, an unprecedented move in a market that relies heavily on open credit. "The whole market is on a credit lockdown. We used to give open account to a group of customers (and now) practically no one," said a trader at one of the major cargo sellers in the city-state.

Traders said buyers were now forced to provide letters of credit issued by banks, or pay cash upfront, squeezing thinly capitalised companies.

The price of obtaining a letter of credit will vary from company to company, depending on its financial standing and relationship with its issuing bank.

A trading source pegged the cost at about 0.04 per cent of the transacted value.

As a result of the credit squeeze, trade activity has slowed and even come to a standstill for some. "Credit is like the lubricants of businesses, without which things will slow down when companies start to clam up on it,"said another Singapore-based fuel oil cargo seller. "It's similar to (what happened after) Lehman Brothers' (collapse)."

REUTERS