Asia received its first fuel oil cargo from Mexico in nine months on Thursday, with more to follow, as higher Asian prices draw supply after the loss of Middle East cargoes due to the Iran war, according to industry sources and shipping data.
The incoming cargoes from Mexico will ease some concerns about declining inventories in Asia's trading and bunkering hub Singapore, after the Iran conflict choked off most fuel oil supplies from key exporters in the Middle East like Iraq and Kuwait via the Strait of Hormuz.
Suezmax tanker Orion, carrying about 160,000 tonnes (one million barrels) of Mexican high-sulphur fuel oil (HSFO) loaded from the Salina Cruz refinery on the Pacific coast, has reached Singapore on May 7, according to traders and ship-tracking data from Kpler.
PMI, the trading arm of Mexican state energy company Pemex, offered another 150,000-tonne HSFO cargo to Asia for June delivery via a tender that closed on May 6 with bids valid until May 8, a Singapore-based trader familiar with the matter said. PMI is expected to award the tender later on Friday.
Fuel oil traders said that strong Asian prices are pulling cargoes to Asia while there is excess supply in the Americas.
"Mexican fuel barrels have to search for more optimal economics due to an influx of Venezuelan oil into the US Gulf Coast," said Emril Jamil, senior analyst for crude and fuel oil at LSEG.
Most of Mexico's fuel oil exports typically land in the US or the Caribbean Islands, Kpler data showed.
Neither Pemex nor its trading arm immediately responded to a request for comment. Traders in Asia have been looking for more arbitrage supplies from the West after the Middle East supply disruption.
The arbitrage is open with front-month 380-cst HSFO East-West spread at near $60 a tonne this week, more than double the level before the conflict, LSEG data showed.
The spread breached $80 a tonne on March 9 following the Middle East war, the data showed, a level last seen in September 2019.
A wider East-West price spread, which measures the price difference between Asian fuel oil versus supply from the Americas and Europe, typically makes it more attractive for cargoes to be shipped from the West to Asia.
(Reporting by Jeslyn Lerh in Singapore and Stefanie Eschenbacher in Mexico City; Editing by Florence Tan and Stephen Coates)
