(ChinaOilWeb, Oct 31, 2006) High-sulfur fuel oil futures on the Shanghai Futures Exchange settled sharply lower Tuesday, pressured by hefty overnight losses in crude futures.

Benchmark fuel oil futures for January delivery settled at CNY2,906 a metric ton, down CNY94 from Monday after trading in a narrow range of CNY2,897-CNY2,927/ton.

Open interest for all contracts totaled 62,854 lots, down 21,396 lots, the largest decline since the listing of fuel oil futures Aug. 25, 2004. One lot equals 10 tons.

This suggested traders cut both long and short positions, partly due to uncertainty over the short-term outlook for crude futures, said Li Min, an analyst with GF Futures.

Analysts said crude futures may still have room to slip further due to scarce bullish news in the market, citing ample heating oil inventories in the U.S., an expected mild winter in the Northern Hemisphere and easing geopolitical concerns.

"There might be some technical rebounds in crude futures in the coming days, but it won't reverse the downward trend," said Li Rong, an analyst with Great Wall Futures.

This, coupled with sluggish spot demand for fuel oil, will continue to weigh on fuel oil futures, analysts said.

"Despite a decline in inbound fuel oil cargoes in the spot market, demand from end users will continue to shrink with the weather getting colder," said GF Futures' Li.

Fuel oil end users such as ceramics plants typically cut their operating rates in the winter, due to seasonal low demand for their products.

The January contract is likely to trade in a range of CNY2,800-CNY3,100/ton in the coming days, she said.

Monday, light, sweet crude futures for December delivery on the New York Mercantile Exchange settled at $58.36 a barrel, down $2.39, as heating oil prices tumbled to a 15-month low and traders speculated that U.S. crude stockpiles will build in government data due Wednesday.  
source:ChinaOilWeb