Traders reap big profits in Singapore by mixing cheap Russia oil: Sources

Demand is soaring for oil storage tanks in Singapore, in a sign that a flood of Russian fuel is being blended and re-exported globally. ST PHOTO: LIM YAOHUI

SINGAPORE – Demand is soaring for oil storage tanks in Singapore, in a sign that a flood of Russian fuel is being blended and re-exported globally.

Tank space in the city-state is being snapped up due to a rise in interest and profits from mixing cheap fuel supplies from Russia with shipments from other sources, according to an executive from a tank operator and a consultant who advises traders on the matter. This process can help to obscure the cargoes’ origins, they said.

Singapore has not banned the import of Russian oil or petroleum products, although financial institutions based in the country are prohibited from financing or dealing with Russian goods and companies. Singapore government agencies referred to past statements on the ban and price cap policy, without additional comments.

Still, the handling and trading of Russian fuel remains a sensitive issue in the region, with some buyers not wanting to be seen purchasing the cargoes.

Russian crude oil and fuel flows to Asia and the Middle East have surged since Moscow’s war in Ukraine prompted Western buyers to turn away in retaliation. Such shipments have increasingly made their way to blending and redistribution hubs like Singapore and Fujairah in the United Arab Emirates where they can be commingled, repackaged and re-exported globally.

This trend of more Russia-to-Asia shipments and the growing role of hubs in their re-distribution may further intensify in the coming weeks as Europe prepares to roll out new sanctions on Russian petroleum products on Feb 5. Oil market participants are keenly watching to see where Russian fuels such as gas oil, naphtha and fuel oil will find homes, as many Asian nations are not taking a hard stance on sanctions.

More inquiries

“We have observed an increase in the number of inquiries of short/spot-term storage in the period leading up to December,” a spokesman for oil storage company Advario Asia Pacific said via e-mail.

The company verifies the source of products to ensure compliance with Russian sanctions before accepting them, the person added.

A spokesman for Singapore-based Jurong Port Universal Terminal declined to comment on specific product movements, but said the company complies with all applicable sanctions.

Among other storage companies, Horizon Singapore Terminals did not respond to Bloomberg queries, while a spokesman for Royal Vopak declined to comment.

Advario, Jurong Port Universal, Horizon and Royal Vopak operate commercial tanks in Singapore. A six-month lease for Singapore fuel oil or crude oil storage rose by as much as 17 per cent to 20 per cent in costs over the course of 2022, said executives from tank operator companies.

Ship-tracking data by Vortexa showed that Singapore oil-receiving terminals took in more than double the volume of Russian naphtha and fuel oil in December 2022 as compared with a year ago. The city-state received 2.6 million barrels of naphtha, nearly 40 times the volume taken a year earlier.

The increased Russian naphtha arriving in Singapore’s tanks is likely to be re-exported to markets in North-east Asia, said Mr Armaan Ashraf, global head of natural gas liquids at industry consultant FGE, based in Singapore.

It is likely that hubs such as Singapore and Fujairah will continue to play a role in rebranding these barrels for distribution to their respective regions, he added.

Oil profits

Traders and fuel suppliers are all over oil storage and blending plays right now due to “very good” profit margins from such activities, said Mr William Tan, senior vice-president at Singapore-based marine fuel consultancy Miyabi Industries.

This is due to the availability of very cheap supplies of Russian fuel oil and other products such as light cycle oil, he said. It greatly incentivises the mixing of these highly discounted varieties into blends that can be resold at a much higher price, thus encouraging traders and fuel suppliers to seek out onshore tanks or offshore floating storage for such plays.

According to Mr Tan’s estimates, traders can enjoy a close to 20 per cent profit margin from mixing Russian components with other grades to make a blended fuel oil product.

This trend has been in place since October, and it is more than the typical profit of between 10 per cent and 12 per cent, he added. Still, margins have room to increase if sellers get more desperate to offload their cargoes due to more trade restrictions.

“Some of this blended fuel may go into the bunker fuel in Singapore, or be traded off to nearby countries such as Indonesia and Vietnam,” said Mr Tan. BLOOMBERG

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