Sing 0.5% spreads still look supportive…for now

• Singapore 0.5% spreads have been trading sideways for the past fortnight, losing momentum after strong gains since the start of the month. But a lack of favourable arb economics from West, weak Singapore blend margins and an open arb to Zhoushan all support spreads for now.

• Unlike Sing 0.5% spreads, 0.5% E/W continues climbing, driven to a large extent by strength in dirty freight. The disconnect between regional markets for the Nov 26 contract stands at $140/t, effectively double where it was at the start of September. At the same time, fixing a Suezmax from Rotterdam to Singapore will set traders back almost $20M at current rates.

• Up until now, expensive freight and big penalty for structure on long-haul voyages have largely prevented the flow of cargo eastwards. Even with the recent slight dip in Suezmax rates, forward Rotterdam-Singapore arbs remain shut. Either freight needs to fall further still and/or E/W needs to climb even more from current levels.

• On blend margins, Sing 0.5 blend margins have recovered somewhat this week, but the high forward blend costs observed in late September is adding an extra layer of tightness to a already short region.

• This is compounded further by an open VLSFO arb to Zhoushan where supplies seemed to be short right before Golden Week. Our arb dashboard shows that arb margins from Singapore to Zhoushan broke into positive from late of September and have since climbed to some $60/mt for mid to late-Nov delivery.

• The combination of limited incoming supply, positive arb margin to North Asia, and a lack of sustained strong Singapore blend margins keep us relatively bullish on the Nov/Dec but we will have to keep a close eye on how freight moves from here.

About the Author
Jay Maroo | Head of Product Experts, Sparta Commodities
Jay Maroo is the Head of Product Experts at Sparta Commodities covering cross-barrel global analysis. Having previously held senior roles at Brevan Howard and Vortexa, Jay is experienced in oil & shipping markets research and building analytics capabilities across global teams.
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