PetroChina Cuts Fuel Oil Floating Storage

PetroChina and trader Mercuria have sold off half of the fuel oil they had in floating storage off the coasts of Singapore and Malaysia on strong demand, according to traders quoted by Reuters. The size of fuel oil in floating storage in the area has been reduced by half, the sources said, suggesting the two companies resold what they bought between March and May.

Storing fuel oil now is unusual, because the fuel oil market in the three-month period has been in backwardation – when spot market prices are higher than futures prices. In such circumstances, traders are quick to sell their stored fuel rather than keep it.

According to the sources, PetroChina and Mercuria bought a combined 6 million tons of fuel oil in the three-month period and stored them in eight or nine tankers, including Very Large Crude Carriers, which can carry up to 2 million barrels of crude, and Aframaxes, which can carry an average of 750,000 barrels.

Fuel oil remains in strong demand for bunkering, despite the growing popularity of LNG as marine fuel due to lower emissions. Regulators are helping make LNG more attractive: last year, the International Maritime Organization introduced a global 0.5-percent sulfur cap for maritime vessels that will come into effect in 2020.

Marine fuel sales in Singapore fell last month, by 4.2 percent on the year to 4.181 million tons, according to data from the Maritime and Port Authority of the city-state, but even so, fuel oil is trading at a higher cash premium. This may climb up further as the coming months will see lower supply from Middle Eastern producers. They will need more of the fuel for domestic consumption as peak demand for air conditioning kicks in.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

• Oil Prices Up, Still Poised For Longest Weekly Lossing Streak Since 2015
• No Respite For Oil Prices As U.S. Rig Count Gains, Canada Adds 27 Rigs
• Yemen War Threatens Crucial Oil Chokepoint