Fuel Oil Supply into Asia to Rise in January

Fuel oil supply from the West into Asia is expected to rise more than 27 percent to at least 4.5 million tonnes in January, up from December shipments estimated at 3.6 million tonne as traders in Europe and the Atlantic seek to clear inventories.

Although figures based on cargo arrivals range from 4.5 million tonnes to 5.3 million tonnes, most traders agree that January inflows will be notably higher than in the previous month.

"We're seeing a bit more flow from the Mediterranean and Black Sea regions," said a Singapore-based fuel oil trader, a result of year-end destocking of inventory that is being pushed towards Asia.

The sharp rise in Western arbitrage arrivals is also in part due to lower-than-expected December inflows caused by adverse weather conditions in the Caribbean that caused some cargoes to spill into January instead, assessments by Thomson Reuters Oil Research & Forecasts showed.

The increase in January shipments is expected to exacerbate oversupply in a saturated market, with fuel oil inventories hitting a six-week high in Singapore last week.

The higher inflow of fuel oil cargoes into Asia will likely weigh on fuel oil refining margins, potentially pressuring prompt prices and widening the contango, should demand remain weaker than supply amid slowing international trade and collapsing commodity prices.

Refineries around the world have been operating at high levels in 2015, due to a strong run of profit margins because of cheap crude feedstock and a resurgence in global demand for refined products following the collapse of oil prices.

This has led to a rise in fuel oil production.

Pressure on fuel oil prices could also be compounded by China's decision to ease import restrictions on independent "teapot" oil refineries, allowing them to potentially use crude oil as an alternative feedstock.

By Roslan Khasawneh