SINGAPORE (Reuters) - Traders and shipping companies scrambled to source fuel and take over supply contracts on Friday after Danish marine fuel supplier OW Bunker said a suspected fraud at its Singapore subsidiary had pushed it to the brink of bankruptcy.

The alleged fraud at Singapore-based Dynamic Oil Trading is potentially one of the biggest financial market scandals to hit the city state since 2004, when China Aviation Oil (Singapore) ran up oil futures losses of US$550 million.

Denmark's Berlingske newspaper cited OW Bunker chairman Niels Henrik Jensen as saying Dynamic's head Lars Moller and some of his colleagues arrived unexpectedly at OW Bunker headquarters in Norresundby, Denmark, this week and explained the situation to chief executive Jim Pedersen. "What we know is based on his own testimony," Berlingske quoted Jensen as saying. Danish state television, citing unnamed sources, said Dynamic's management denied any involvement in fraud.

Moller could not be reached for comment at Dynamic's office in Singapore on Friday, and no-one was present at his home in a luxury condominium near the city-state's Botanic Gardens.

OW Bunker, Denmark's third largest company by revenue, said on Thursday that investors needed to assume that the company's equity has been wiped out due to losses at Dynamic estimated to be around $125 million.

The company did not give any details of the alleged fraud, but several traders said the problem was likely related to the recent sharp fall in oil prices.

Benchmark Brent crude oil futures have dropped almost 30 percent in value since June to levels last seen in 2010 as rising supplies clash with cooling demand. "I assume they were very long on their hedges so suffered losses when oil prices came down," said one trader who has had counterparty positions with OW Bunker.

Taking a long position requires an investment into a product, such as oil, benefiting from rising prices, meaning that a trader with a long position makes a loss if prices fall.

The company, whose shares have been suspended, said it had fired its head of risk management.

OW Bunker is estimated to have about 7 per cent of the global market for bunker, a liquid fuel refined from crude oil and used to power ships, competing with companies such as World Fuel Services Corp, Chemoil Energy and Aegean Marine Petroleum Network.

Traders said refineries and other shipping fuel suppliers were cutting deliveries and were likely to cancel long-term contracts with the Danish company.

On Friday at Dynamic's office in Singapore, trading desks were largely empty while the few staff who were present told Reuters reporters they were waiting for instructions from headquarters.

Two people who visited the office, on the 11th floor of the art-deco inspired Parkview skyscraper, told Reuters their Singapore-based firm had supplied Dynamic with oil and they were waiting to see whether they would be paid.

Legal sources in Singapore said that they had received several calls from counterparty firms concerned about what they could do to ensure payment for their trades with Dynamic.

Singapore Police Force's white collar crimes unit declined to comment on whether they were investigating.

A bunker fuel trader in Europe said that many vessel owners and operators were cancelling their orders with OW Bunker, but that the fallout in the market would still be huge if the company went down without paying out its existing positions.

"This will have a huge impact on the market. It's not impossible that this will have a small domino effect. If they go bankrupt, financially less secure players will also go bankrupt," the European bunker trader said. "These guys were huge worldwide players," the trader added.

OW Bunker supplies 100,000-200,000 tonnes of fuel per month, worth up to US$118 million a month in current market terms, in the Singapore market, according to bunker trading sources.

Two Dynamic Oil traders, who were not authorised to speak to the media, said the issue was likely related to the recent price drops in oil-related products that the company specializes in. "I think also some risk management happening due to rapidly falling oil prices so we had some paper losses. I think the paper loss was quite a lot," one trader said without giving exact figures.

The trader also said that his desk was not taking in new orders, but that they were still trading on existing deals as of Thursday.