Oil product inventories in the Singapore storage and trading hub fell to an eight-month low in the week ended July 17, official data showed, in one of the latest signs that suppliers are gearing up for rule changes to make marine fuel cleaner.
Singapore onshore stocks of petroleum products, which include gasoline, diesel, jet fuel and residual fuel oil, came in at 38.372 million barrels, down from 41.725 million barrels in the previous week and their lowest since the week ended Nov. 14 last year, data from Enterprise Singapore showed on Thursday.
"Several industry players are switching their tanks towards the different kinds of low-sulfur fuels rather than just high-sulfur fuel oil," a source with a Singapore-based storage operator said when asked about shrinking oil product stocks.
The switching process will take time and involves clearing storage tanks occupied by high-sulfur fuel oils (HSFO) and their blending components, said the source, who declined to be identified because of company policy.
Under International Maritime Organization (IMO) rules that come into effect from 2020, ships will have to use fuel with a sulfur content of 0.5% or less, down from 3.5%, in one of the biggest fuel-spec changes to hit the global shipping and oil refining industries in decades.
The decline in inventories was led by distillates, sinking to a more than nine-month low of 10,163 million barrels, an residual fuels that slipped to a six-month low of 18.539 million barrels, the data showed.
Fuel oil inventories have registered five straight weeks of declines and are 6% below their year-ago levels, the data showed, raising concerns that tightening supplies could struggle to meet current demand.
Declining HSFO inventories, together with the expected sharp decline in demand for HSFO after the IMO rules kick in, have helped to push the fuel oil market structure into steep backwardation in recent weeks, making HSFO storage increasingly unprofitable.
A backwardated market typically has tight inventories, with the price for immediate delivery trading above future prices.
Storing of oil products is uneconomic in a backwardated market because it is difficult for traders to recover storage costs.
Singapore's onshore light distillates, which comprise mostly gasoline, had the most significant drawdown, resulting in inventories hitting close to a 9-1/2 month low, the data showed.
There was no record of Indian gasoline exports to Singapore, while Taiwan's volumes of 22,257 tonnes were 80% down from the week ended July 10.
