By Luke Pachymuthu
SINGAPORE, May 14 (Reuters) - Western arbitrage fuel oil flows into Asia are expected to hit 5.92 million tonnes in May, up 9.7 percent from the previous month and the highest since January, according to data provided to Reuters by traders and ship brokers.
May cargo arrivals from the West, which are nearly 17 percent higher than the monthly average of 5.07 million tonnes so far this year, are mostly high viscosity, high density cargoes, the traders and brokers estimated.
Nearly two-thirds of the supply flow is expected to be 380-centistoke (cst), a benchmark for the marine fuels market, and that has reduced wholesale cash premiums for the bunker grade by nearly half. In April, a shortage of 380-cst for the marine market caused premiums to Singapore quotes to double to around $10 a tonne compared with the previous month.
"There is quite a bit of 380-cst coming into the region now, and if you look further out into the second half of May and then June, it looks like the bulk of the flows is of bunker grade," said a Singapore-based trader with a European trading firm.
The data shows that the supply flows coming into Asia are likely to be made up of about 800,000 to 1 million tonnes low-sulphur residual fuel, an estimated 1 million tonnes straight-run fuel oil, and the rest being 380-cst.
Traders said premiums for 380-cst are starting to come off, particularly with the volumes that are expected in June.
Ex-wharf premiums for the bunker grade are around $5 to $7 a tonne to the Singapore quotes for 380-cst on Tuesday, they said.
JUNE ARRIVALS
June western arbitrage fuel oil arrivals into Asia are estimated to be around 3.5 million to 4 million tonnes, the traders and brokers said.
"We are not expected to see much more change on that number," a Singapore-based trader with an Asian trading company said.
Arrivals of low sulphur fuel oil in June were pegged at 250,000 to 300,000 tonnes, while to date only 150,000 to 200,000 tonnes of straight run fuel oil is expected to move East.
"Again it would seem that we're going to have mostly on-specification fuels coming here (Asia), which means there won't be the kind of demand for blendstocks, we saw in April," the second trader said.
Demand for blendstocks such as Iranian straight-run fuel oil was higher in April due to the scarcity of on-specification bunker grade flowing in from the West.
The improving supply sentiment for the bunker benchmark 380-cst for May and June was reflected in a weakening of the intermonth premiums and cash differentials.
The 380-cst prompt intermonth premium for May/June was valued at $1.00 a tonne at Asia's close on Monday, down $3.50 from levels seen at the start of the month.
Cash differentials, which reflect the price sentiment inside a 15-30 day trading cycle, was pegged at $1.76 a tonne following Monday's session, down $1.54 from the Asian close on May 2.
"You can see the market softening because now the anticipation is that we will have more than enough supply in the market going at least going into the second-half of June," a Singapore-based bunker trader said.
(Editing by Tom Hogue)
