Don’t miss the latest developments in business and finance.

Recovery Of Fuel Oil Price Likely To Be Limited

Image
BSCAL
Last Updated : Jan 24 1997 | 12:00 AM IST

Asias high sulphur fuel oil price slide may have bottomed out after a trade on Wednesday sparked talk of firmer sentiment, but traders said ample supplies would limit any price recovery. Traders said paper swaps an underlying derivatives market have already shown signs of recovery, with February deals at $100 per tonne yesterday, up $3 from Wednesday.

Sentiment is currently healthier as reflected in the swaps market after the deal done yesterday. The deal also indicates that levels have gone low enough to spark off buying interest, a trader said.

On Wednesday, a 20,000-tonne cargo of benchmark 180-cst fuel oil for loading on February 17-23 was sold by British Petroleum & Co Plc to Dutch trader Vitol at $93 per tonne.

More From This Section

The trade represented a dramatic 25 per cent plunge from the last trade of $124 done on December 30. Traders said a recent move by Singapore refiners to cut output had also helped boost sentiment. The plunging price of fuel oil was accompanied by a sharp loss in gas oil, forcing refiners to cut production and slow a build up in stocks.

Shell Singapore cut runs at its 435,000 barrel-per-day (bpd) refinery by 30,000 bpd. Esso Singapore reduced output last weekend by 20 to 25 per cent at its 230,000 bpd refinery. Singapore Refining Co was also planning a short term cut in production.

But some traders said while swaps levels have rebounded, cash prices might struggle to breach the $100-per-tonne mark until after Chinese New Year, because of an overhang of supplies.

We still have supplies from South Korea, Japan, the Middle East still unsold and China is still not buying, said a trader. We still have over 100,000 tonnes of supplies for January end or early February still seeking buyers, he said.Traders said they will be watching the stocks figures released by the Trade Development Board of Singapore later to Wednesday to assess the level of the overhang.

The recent price fall that started on January 6 was triggered by a sharp fall in imports to China and high inventory levels in Hong Kong.

Normally, China imports more than 400,000 tonnes of fuel oil per month, but deliveries in February could be half that amount, traders said.

Last year China demand kept the fuel market tight, but this year extra refining capacity, most noticeably from South Korea, has left excess supplies available. China built up stocks through December and January for Chinese New Year holidays, which begin on February 7 and which are expected to last two weeks.

Also Read

First Published: Jan 24 1997 | 12:00 AM IST

Next Story