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ICE Singapore HSFO June open interest surges 93% on year to 18.6 mil mt/day

https://www.chemnet.com   May 26,2015 Platts
Singapore high sulfur fuel oil June derivative contracts cleared by ICE Clear Europe have seen open interest surge 93% year on year to 18.585 million mt Wednesday from 9.627 million mt on the same date a year earlier, ICE data showed Friday.

380 CST contracts accounted for 9.625 million mt or 51.8% of Wednesday's total, followed by 180 CST contracts at 3.293 million mt (17.7%).

Singapore viscosity spread contracts for June came in at 2.182 million mt (11.7%).

Contracts for the spread between 180 CST Singapore and Rotterdam 3.5% fuel oil barges stood at 2.667 million mt, and for the spread between 380 CST Singapore and Rotterdam at 818,000 mt.

Open interest in the June 380 CST contract averaged 1.524 million mt/day in January.

In comparison, open interest for the June 2014 380 CST contract averaged 599,000 mt/day in January 2014.

It had climbed to a maximum daily volume of 2.475 million mt by expiry on July 1, 2014.

The bulk of Singapore fuel oil paper contracts are traded on a cleared basis, with much of that cleared through ICE Clear Europe, the clearing arm of the Intercontinental Exchange.

Industry sources have said a significant amount of positions have been built in the Singapore HSFO market over the past few months, which has coincided with steepening backwardation in the June/July intermonth spread contract.

The Singapore 180 CST front month or June/July spread was assessed at $12.50/mt Thursday, the highest since January 31, 2012, when the front month spread was assessed at $15.80/mt.

Platts started assessing the June/July 2015 spread contract in July 2014. The spread was in backwardation from June 2014 to mid-September 2014, when it flipped to contango, reflecting a generally weak market in crude futures.

The spread flipped back to backwardation March 24 and has steepened steadily since then.

Several industry sources have questioned whether the steep backwardation in the paper market is in line with physical market fundamentals, given cash discounts in the physical market.

FUNDAMENTALS SEEN LARGELY UNCHANGED

The Singapore 180 CST HSFO cash differential, which reflects physical spot cargoes, was assessed at a discount of $4.14/mt Thursday, while the 380 CST cash differential was assessed at a discount of $5.97/mt, weighed down by a continuous glut in supply.

"To me it doesn't make any sense ... fundamentally I don't see the June [HSFO] market as being any different from May [when prices were weak], or for that matter the July market to be any different from June," said a trader in Singapore.

"If you look at it from the fundamentals point of view, the physical market does not justify such a steep backwardation at all... so it's very weird," said another Singapore-based trader.

"Bunker demand is quite stable. But even if you are talking about healthy demand, if you look at the amount of oil that is coming in [from the West], the balance is tilted heavily towards supply," said a third trader.

"The rise in stocks explains the increasing fuel oil supply situation," he added.

Market sources estimate a total 6.5 million mt of arbitrage volumes will arrive East in May, compared with an average of around 5 million mt/month over January-April.

"I think the fundamentals are poor, very poor," a trader said noting the length in the market.

"It [the steep discount] is not down to one certain grade, it is a combination of US exports and Europe and there are Q2 seasonal exports from the AG," the trader added.

Healthy margins globally for refiners have led to an increase in crude processing rates, which in turn has led to a rise in fuel oil output and flows across to Singapore, traders said.
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