SINGAPORE, July 18 (Reuters) - 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 cleaner to-be-launched marine fuel rules.
Singapore onshore stocks of petroleum products, which include gasoline, diesel, jet fuel and residual fuel oil, came in at 38.372 million barrels in the week ended July 17, down from 41.725 million barrels in the previous week and their lowest since the week ended Nov. 14, 2018, data from Enterprise Singapore showed on Thursday.
“Several industry players are switching their tanks towards the different kinds of low-sulphur fuels rather than just high-sulphur fuel oil now,” a source with a Singapore-based storage operator said, when asked about the shrinking oil product stocks.
The switching process will take time and involves clearing storage tanks occupied by high-sulphur fuel oils (HSFO) and their blending components, said the source, who declined to be identified due to company policy.
Under International Maritime Organization (IMO) rules that come into effect from 2020, ships will have to use fuel with a sulphur content of 0.5% or less, compared with current 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 lead by a drop in light distillate inventories STKLD-SIN, which sank to a more than nine-month low of 10,163 million barrels, as well as falling stocks of residual fuels STKRS-SIN, which slipped to a six-month low of 18.539 million barrels, the data showed.
Fuel oil inventories have posted five straight weeks of declines and are 6% below their year-ago levels, the data showed, fuelling concerns that tightening supplies will struggle to meet current demand.,
The declining HSFO inventories, together with the expected sharp decline in demand for HSFO from 2020 once the IMO rules kick in, helped push the fuel oil market structure into steep backwardation in recent weeks, making HSFO storage increasingly unprofitable. A backwardated market is typically characterized with tight inventories, where the price for immediate delivery trades above future prices.
Storing of oil products is uneconomic in a backwardated market when prompt prices are higher than forward prices, as it difficult for traders to recover the costs of storage.
Reporting by Roslan Khasawneh, additional reporting by Florence Tan; Editing by Sherry Jacob-Phillips