Fuel oil arbitrage volumes into Singapore have fallen for three consecutive months, but so far the drop-off has not led to any supply constraints in the trading hub as there is plenty of the shipping and industrial fuel stored offshore in tankers.

Total fuel oil flows into East Asia – most of which finds its way to Singapore – are down 23 percent in July compared with the previous month and are nearly half of the year-to-date average, according to data from Thomson Reuters Supply Chain and Commodities Research.

Official data in Singapore, however, still shows onshore inventories of fuel oil have gained 11 percent since the start of the month to 28.24 million barrels.

“It is puzzling,” said a Singapore-based trader who declined to be identified as he is not allowed to speak to the media. “With every week of July (onshore inventory) builds, we expected to see a big drop in the next week, but that has yet to happen.”

Other traders and brokers said the increase in inventories even as arbitrage supplies fell would seem to be the result of fuel oil in floating storage finding its way to onshore tanks.

For one, smaller 110,000 deadweight tonne Aframax vessels that have been used for floating storage around Singapore are being reactivated to carry oil cargoes to East and North Asia, a Singapore tanker broker said.

The capacity for the floating storage volumes to more than offset the steep drop in arbitrage supplies indicates the vast volumes of fuel oil that must have been stored in Singapore waters, traders said.

“The rising (onshore) inventories tells us either demand fell off a cliff, or fuel oil in floating storage is making its way in to onshore tanks,” said a second Singapore-based trader. “For me, it’s most probably the latter.”

BUKOM RESTART

Another factor helping to compensate for the drop in arbitrage supplies is the recent restart of the 200,000 barrel per day (bpd) crude distillation unit (CDU) at Royal Dutch Shell’s refinery in Bukom Island, Singapore, said Nevyn Nah, oil products analyst at Energy Aspects.

“In addition to floaters bringing fuel oil ashore, you can also argue that Singapore’s fuel oil output has also risen following the return of the Bukom CDU,” Nah said.

Shell restarted the 200,000 bpd CDU – one of three – at its 500,000 bpd Bukom refinery in early June. The CDU was hit by a fire last year while it was idled for maintenance, and Singapore’s Ministry of Manpower issued a ‘Stop Work’ order on Aug. 25, 2015.

Running at full capacity and yielding 15 to 20 percent of fuel oil, the restarted CDU can add as much as 180,000 tonnes of the residual fuel to Singapore’s monthly output.

Source: Reuters (Reporting by Roslan Khasawneh, with additional reporting by Keith Wallis; Editing by Tom Hogue)