Europe May Ship More Fuel Oil to Asia

Europe May Ship More Fuel Oil to Asia on Japanese Power Demand
By Bill Murray and Nidaa Bakhsh
July 23 (Bloomberg)

Europe-to-Asia shipments of fuel oil, used to generate electricity and power ships, may increase after demand from generators in Japan and China boosted prices in the region to a record.

The premium of Asian to European prices rose to a five- month high of $39.55 a metric ton on July 20, making so-called arbitrage cargoes more profitable. The spread was at $32.05 at 1:07 p.m. in London, compared with this year's average of $21.25, according to data compiled by Bloomberg. Asian fuel oil rose to a record $410.50 a ton on July 20.

Tokyo Electric Power Co. shut the world's largest nuclear plant on July 16 after it was hit by an earthquake. That will prompt Japanese refiners to increase output from plants that burn fuel oil. China's economy grew at the fastest pace in 12 years in the second quarter, boosting power demand.

``I wouldn't be surprised if there were five VLCCs'' hired for arbitrage shipments, said Christian Laurenborg, a fuel oil buyer for A.P. Moeller-Maersk A/S, the world's biggest shipping line. Surging fuel demand from Chinese companies is ``what makes life difficult for guys like me.''

Five very large crude carriers, or VLCCs, tankers able to carry about 2 million barrels of oil, are sailing toward Rotterdam, Europe's biggest port and supply center for fuel oil, according to AISLive data on Bloomberg. Traders normally use VLCCs for arbitrage shipments because they are the cheapest means of hauling the material over long distances.

Exxon, Shell

Exxon Mobil Corp. and Royal Dutch Shell Plc have each hired tankers to carry 80,000 tons of fuel oil from Saudi Arabia to the Far East, shipbrokers said. Asia's shortage of fuel oil is around 720,000 barrels a day, broker PVM said.

The strong demand is ``mostly due to higher expected fuel oil demand after the closure of the world's largest nuclear reactor in Japan following an earthquake,'' according to a daily energy market report published by PVM Oil Associates GmbH in Vienna.

The cost of hiring VLCCS has fallen to the lowest in almost four years after the Organization of Petroleum Exporting Countries cut production. That's helped to make fuel oil shipments from Europe profitable.

Fuel oil traded little-changed at about $370 a ton at Rotterdam today, Maersk's Laurenborg said.