Bunker fuel prices in the Fujairah market have fallen to their lowest in 16 months as falling crude oil prices weigh on bunker and cargo fuel oil premiums in the region.

Prices for 380 centistoke (cst) fuel oil in Fujairah are around $578 a tonne, while prices for 180 cst are at $605 a tonne, both their lowest levels since February 2011.

The Asian bunker market is similarly weak. The price of ex-wharf marina fuel hit a new 17-month low on Monday with participants expecting to see further falls. But premiums for 180 cst rebounded.

"Crude is dropping so the (tanker) owners are not buying as they want to see how much it can fall, so basically delaying demand," one Fujairah-based fuel oil trader said.

Oil is on track to post its biggest quarterly fall since the financial crisis in 2008 as the euro zone crisis and weak growth in the United States weigh on the global market, while ample supply from OPEC has added to the downward pressure on prices.

"This puts pressure on premiums as sellers want to sell but there are not many buyers around in Fujairah," he said.

The port of Fujairah, on the east coast of OPEC member United Arab Emirates, is one of the world's biggest bunker hubs.

Traders pegged premiums for Fujairah fuel oil cargos between $5 to 6 a tonne over Mopag 180 average and bunker premiums at around $2-3 a tonne over the same benchmark.

"Seeing crude fall so fast was scary," an Asia-based fuel oil trader said. "Buyers are wary now thinking it could keep its free fall, so they refrain from making big purchases," he said.

Another trader said tanker owners who normally lift 2,000 tonnes of bunker fuel were buying only a quarter of that in the hope of buying more at a lower price later.

But traders say underlying demand is strong and expect buyers to return to the market soon to snap up cheaper fuel they still need.

"These very low prices should eventually help the market strengthen actually because the demand has not disappeared," a Gulf-based fuel oil trader said.
Expectations of a tighter market in Asia and the Middle East as the peak summer demand period approaches should also encourage buyers to come back to the market soon, they said.

Lower deliveries of fuel as Middle East producers satisfy their own fuel oil demand, which typically peaks with air conditioning demand in July and August, combined with lower volumes from western hemisphere producers, should tighten the bunker market.

Western arbitrage inflows into Asia are expected to be 3.0-3.5 million tonnes in July, down from June's 4.2 million.

Source: Reuters