Rotterdam Fuel Oil VLCC Loadings Heating Up

Activity on the Northwest Europe to Singapore fuel oil arbitrage route has started the year with a flurry.

The VLCC As Suwayq, chartered by Gunvor, is currently loading at Vopak Europoort. Meanwhile, Trafigura have chartered the Nave Buena Suerte, which is en-route to Rotterdam with a US crude oil cargo due January 24th. Petroineos have fixed the New Successto load fuel oil with early February dates from Rotterdam. And reportedly, the Maran Artemis is on subs off January 24th but not confirmed if for fuel or crude.

This flash of VLCC activity in fuel oil has apparently been sparked by decreasing freight rates.

In comparison to this time last month, VLCC lump sum rates have fallen from $6.25 million a month earlier to $5.00 million; a $4.50 per metric ton drop.

Over the same timeframe the January to March cross arb (January fuel oil in NW Europe versus March fuel oil in Singapore) has narrowed just $0.25 to $20.50 per ton. In this way, the arb economics have seen an improvement of $4.25 per ton over the past month.

More commonly, the arb would move quickly in step with freight, keeping the landed numbers unchanged. Given the significant drop in freight it’s no surprise to see trade jumping on the arb to take advantage.

However, on current economics RMG-380 (bunker grade) is discussed around 3.5% Barges FOB Rotterdam plus $3.00 per ton on a FOB Rotterdam basis, according to market participants. 

If we allow for five days of demurrage and ancillary costs, that would land into Singapore at March 380cst plus $4.25. Since the current print is in Singapore is +3.50, that appears to land at a loss of $0.75. So it looks like the trade is either moving fuel to meet commitments or is counting on the premiums to improve in that time.

RMK-500 grade fares a bit better in the economics with FOB Rotterdam prices at Barges minus $4.50 per ton which lands in March at minus $1.50 per ton – which appears profitable, assuming a 380 minus $1.00 per ton value in Singapore.

Given the IMO 2020 changes restricting sulphur levels in bunker fuels, the consensus is that high sulphur fuel oil (HSFO) arbitrage activity will stall around the end of the third quarter of this year. Though we may already be seeing a slow down in general global fuel oil activity given that the quantity of fuel oil discharged in December was the lowest we’ve seen in over two years.

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