S Korean bunker fuel market tightens on OW Bunker fallout, credit freeze

Bunker fuel supply in South Korea has tightened as refiners respond to OW Bunker’s bankruptcy filing by reviewing their credit policies and limiting exposure, sources said Wednesday, November 12.

OW Bunker, the largest buyer of bunker fuel in South Korea, filed for bankruptcy protection late Friday, two days after it announced a loss of at least $275 million due to a combination of fraud by senior employees at Singapore subsidiary Dynamic Oil Trading and mark-to-market losses in the wake of collapsing global crude prices.

OW Bunker was estimated to trade about 140,000-150,000 mt/month of bunker fuel in South Korea, or 20% of the country’s total bunker volumes, Seoul-based traders said.

“We need to limit our risk exposure,” a source from a refinery said.

A trader said refineries were controlling their credit policies.

“Some refiners have stopped open credit terms. I’ve heard they changed their policy now,” the source added, but this could not be confirmed.

Elsewhere in the region, bunker fuel suppliers in Hong Kong, Shanghai and Tokyo Bay have seen a slight increase in spot orders since the OW bunker filing and resulting credit freeze in South Korea, trade sources said Wednesday.

A Hong Kong trader said that daily sales inquiries have risen to 3,000-4,000 mt since the fallout, compared with 1,000-2,000 mt previously.

In Shanghai, traders said they saw an uptick in urgent spot demand.

“Bunker sales volume has been better this week,” a trader there said.

A supplier estimated that bunker fuel sales have increased 5-10% since November 5, when news of OW Bunker’s losses were first announced. Actual sales figures were not provided.

“Demand for bunker fuel for November in Japan is high,” a Tokyo-based trader said.

“I think South Korean refineries will lower their sales volumes due to credit issues, and some vessels will have to call at Japanese ports for bunkering.”

HIGHER VOLUMES SEEN AS TEMPORARY

Traders expect the OW Bunker-related rise in bunker fuel sales volumes in Hong Kong, Shanghai and Tokyo Bay to be short-lived.

“There are not much bunker-only points in Japan, therefore not many more vessels coming to Japan for refueling,” a Tokyo-based trader said.

A Shanghai-based trader said: “In the longer term, the excess orders [from OW Bunker] will be settled by South Korea trading houses.”

Hong Kong traders expect most of the void created by OW Bunker has already been filled by other trading houses.

Market participants do not expect a fundamental shift in bunker demand in North Asia.

“I do not think there will be a territorial redistribution of bunker sales volumes in North Asia,” a Tokyo-based trader said.

“I think trading houses in South Korea will take some time, but they will be able to digest the additional bunker volumes.”

Traders expect South Korea to continue to be a key bunkering location in Asia. Market sources estimate bunker sales volumes to be around 600,000-650,000 mt/month.
Source: Platts