European VLSFO backwardation hits nine-month high
4th December 2020 15:39 GMT

The European very low sulfur fuel oil market has hit nine-month high as product comes to the market ahead of year-end.

The spread between the physical and front-month paper market, more commonly known as the cash-paper spread, for 0.5%S FOB Rotterdam barges was assessed at $7.25/mt on Dec. 3 after rallying more than $8 in just over a week.

The paper market front-month to second-month spread has also strengthened in recent days, flipping into a very weak backwardated structure, assessed at $0.25/mt on Dec. 3

“People want to hold less stock in tank,” a trader based in Northwest Europe said. “[They] want money in the door for year-end and structure doesn’t pay to keep product in tank.”

A second trader said: “The backwardation in the paper market I’d say is due to poor refinery margins in December, plus lots of refineries shutting down.”

“There’s lots of repositioning,” the trader said.

As the end of the year approaches, demand in the fuel oil market has tailed off as companies look to minimize the amount of product they hold in storage for balance sheet purposes. This has improved availability of those products that had previously been seeing tightness due to reduced refineries runs.

Bunkerworld .,
4th December 2020 15:39 GMT