The front month East-West (EW) spread continued to narrow on Thursday despite a notable drop in onshore Singapore inventories signalling a delayed start of tightening near-term supplies in Singapore, traders said.

"Finally (onshore) inventories dropped," said a Singapore-based fuel oil trader.

Onshore stocks of Singapore fuel oil fell by 1.61 million barrels (approximately 240,000 tonnes) to a total of 26.63 million barrels (or 3.98 million tonnes) in the week to July 27, the latest official data showed.

With arbitrage volumes into Singapore falling for the past three months, industry participants largely expected to see a notable tightening of supplies amid firm demand.

However, the decline in arbitrage volumes has largely been offset by vast stocks of fuel oil stored in tankers around the Singapore trading hub and has not led to any constraints.

"Looks like the excess floater volumes has already been transferred onshore and will probably begin to see the effects in tightened arbitrage flows," said another Singapore-based trader.

Adding to the near-term supply tightness is an arbitrage window that is now firmly shut, traders and brokers said.

The August EW spread, the price difference between FOB Singapore 180-cst high-sulphur fuel oil and FOB Rotterdam barge fuel oil with maximum 3.5 percent sulphur, fell for an eighth straight session to $14.25 a tonne on Thursday, decreasing the economic viability of arbitrage opportunities.

Thursday's decline in August EW spreads widens the gap from the a 3-month high of $21 a tonne last seen on July 12.

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Source: Hellenic Shipping News