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Credit squeeze hits Singapore bunker market after OW Bunker collapse

Credit squeeze hits Singapore bunker market after OW Bunker collapse
Singapore’s bunker market has been hit by reduced credit from ex-wharf fuel suppliers and requests for cash-in-advance payments by barging companies, following the collapse into bankruptcy of OW Bunker, local traders said.

Singapore-based bunker traders have noted that ex-wharf fuel sellers are displaying a higher degree of caution to all bunker suppliers and traders, and as a result bunker suppliers are also cutting credits to the end users due to tighter cash flow.

“It is a bit chaotic now in terms of barge loadings and how ex-wharf sellers are coping,” a Singapore bunker trading manager told Seatrade Global. Barging companies are quoting cash-in-advance (CIA) or cash-on-delivery (COD) as they seek to avoid payment default by companies that are hit by the OW Bunker saga.

“Ex-wharf sellers who want letters of credit or guarantees also cannot hold back their bunker cargoes for too long at the terminals due to incoming fuel oil cargoes that they have to make space for,” he added.

Another industry player said bunker suppliers operating a tier below oil majors will likely tighten their credit resources from the industry norm of 30 days to CIA or COD, depending on their respective exposures and financial strength of counterparties.

“There will be a liquidity squeeze that will cause a ripple effect down the supply chain. There will be impact on smaller-scale local suppliers who have been dependent on the trading houses to provide financial support for their cargo purchases,” the industry player observed.

Bunker suppliers and traders in a strong financial position, however, are expected to benefit from enlarging their market share as they tap on the existing clients of OW Bunker. The fuel sellers have also used the opportunity to jack up prices for buyers in need of urgent bunker deliveries.

A bunker trader said buyers are likely to take offers from these alternative suppliers who are quoting $5-10 per metric tonne above ex-wharf prices. “Hence there is now an impact on pricings as well, but this is expected to be short term as the global crude oil market remains soft,” the trader said.

Meanwhile, five Singapore’s homegrown bunker suppliers were heard to have been hit by the fall of OW Bunker, with up to six-figure payment default for some. Up to eight local and international ex-wharf fuel sellers and international oil majors were also believed to have been impacted.

OW Bunker filed for bankruptcy on Friday following the uncovering of a $125m fraud in Singapore-based Dynamic Oil Trading and a $150m risk management loss. Reports also said OW Bunker owes 13 banks $750m.

“Banks are secured creditors, that leave the suppliers whom OW Bunker owed in a vulnerable position,” the industry player said.

On Tuesday, the Maritime and Port Authority of Singapore (MPA) has assured the local market that there will be “minimal disruption to bunker supply” in Singapore. “There are currently more than 60 bunker suppliers in Singapore, and OW Bunker Far East (Singapore) Pte Ltd accounted for less than 3% of the 42.6 million metric tonnes supplied in Singapore in 2013,” MPA stated.