June 16, 2017 / 10:49 AM / 2 years ago

Mercuria, PetroChina selling fuel oil stored offshore Singapore, Malaysia

* Three to four tankers storing fuel oil, down from eight or nine

* Mercuria, PetroChina main buyers of fuel oil over March to May

* Bunker demand healthy despite drop in Singapore sales -trader

By Jessica Jaganathan

SINGAPORE, June 16 (Reuters) - Independent trading house Mercuria and Chinese state oil giant PetroChina are selling fuel oil stored in vessels off Singapore and southern Malaysia on strong demand from the shipping and power sector, several trade sources said on Friday.

The number of vessels storing fuel oil has halved from a month ago as Mercuria and PetroChina may have resold cargoes purchased over March to May, the sources said.

Geneva-based Mercuria and PetroChina bought over 6 million tonnes of fuel oil over those months in oil pricing agency S&P Global Platts’ trading period known as market-on-close (MOC).

Their deals made up nearly three-quarters of the volumes traded in that period, according to data compiled by Reuters.

It is unusual for traders to store fuel oil in vessels when the market is backwardated, a term used to describe a price structure where prompt prices are higher than those in forward months, the sources said.

“Nobody floats when the market is backwardated as you can’t cover the cost of storage, so this is quite unusual,” a Singapore-based fuel oil trader said.

Mercuria did not answer calls to its Singapore office, while PetroChina did not immediately respond to emailed questions.

The volumes the two purchased over March to May were stored in eight or nine tankers, including very large crude carriers (VLCCs) and Aframaxes, traders said.

The companies are now starting to resell the cargoes, and the number of vessels storing fuel oil have reduced to about three or four VLCCs, another Singapore-based fuel oil trader said.

Mercuria may have already resold all its cargoes, a trader with an European oil firm said.

Demand for fuel oil for bunkers, or shipping fuel, has been healthy even though sales dipped in May, the first Singapore-based trader said.

Singapore sales of marine fuels in May fell to 4.181 million tonnes, down 4.2 percent from a year ago, data from the Maritime and Port Authority of Singapore (MPA) shows.

The cash premium of bunker fuel sold to ships, however, has been trading at higher than usual levels, indicating that demand for fuel oil is still strong, the first trader said.

The sales from storage also come ahead of an expected seasonal tightening of exports from the Middle East as over the summer countries in the Gulf use fuel oil for power generation as air conditioning use increases.

Margins for fuel oil in Europe have also outperformed cleaner fuels such as diesel and gasoline following the OPEC-led decision to cut output, which has limited supplies of heavier and sour crude oil grades that yield more fuel oil, also cutting supply. (Reporting by Jessica Jaganathan; Editing by Tom Hogue)

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