VLCCs Benefit From Fuel Oil Arbitrage

Platts reports that at least two VLCCs have been chartered to carry High Sulphur Fuel Oil (HSFO) from Rotterdam to Singapore. The 2002-built, 299,222 dwt “ASTRO CHALLENGE” is reported by Platts to have been fixed by Litasco for loading 29 September on a $3m lumpsum basis.

VLCC carrying cargoes of bunkers from Rotterdam to Singapore are quite rare. According to Clarksons SIN, there were three reported VLCC fuel oil fixtures from Rotterdam to Singapore in 2011, ranging from $2.8m to $3.3m lumpsum. So far in 2012 there have been two similar voyages, plus the two upcoming voyages. The difference between Rotterdam 380cst Fuel Oil has drifted out to $28/tonne in the last two weeks of August.

The stars on the chart indicate the occasions when VLCCs have been fixed for similar cargoes of fuel oil from Rotterdam to Singapore between May 2008 (when Clarkson Research first started recording lumpsum prices) and September 2012. On average the lumpsum for reported voyages has been around $3.55m, with a low of $2.25m for a 280,000 tonne cargo in April 2009. The average lumpsum for the whole period was $4.22m. The average spread between Rotterdam and Singapore fuel oil prices during that period is $23.81/tonne, but the average on the actual reported voyages is slightly lower at $20.33/tonne. Therefore it doesn’t seem to be the arbitrage in the cost of the cargo, but the low cost of freight. Furthermore, the spread between Rotterdam and Singapore in the summer of 2008 reached over $50/tonne, but the VLCC market was healthy and the indicative lumpsum rarely fell below $6m. No reported fixtures took place during this period. Therefore, it would seem that when the lumpsum falls below $4m and the spread is over $20/tonne, and then the marginal gains are worth the risk of shipping a 270,000 tonne of fuel oil half-way across the world.

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