Record high stocks of fuel oil in Singapore are pushing traders to store the shipping and feedstock fuel into tankers temporarily as demand slows regionally.

At least seven very large crude carriers (VLCCs) have been provisionally fixed to store fuel oil on short-term time charters, traders and shipbrokers said.

Lower oil prices have boosted refinery profits over most of this year, in turn driving refiners to maximise run rates and increase the supply of fuel oil in the region, traders said.

Traders are also taking advantage of cheaper freight rates and a steep contango where prices of cargoes loading in the current month are cheaper than those loading in forward months.

"The contango is paying for it at the moment though freight rates have been swinging up and down," a Singapore-based fuel oil trader said.

Freight rates for VLCCs hit a six-year low in late August but have since climbed to a seven-week high as of last week.

The price difference between the 380-centistoke (cst) fuel oil loading in the front month versus a month later widened to its biggest spread in late August since at least March 2009, when Reuters first started tracking the data.

The price spread has since narrowed but still remains wide.

"The structure pays for the floating storage so it's a free option for traders," said a Singapore-based trader who is storing fuel oil in a tanker.

"If the spread (narrows), then you can always discharge and sell and get out of the structure but December should be the furthest that people will store as the structure will not fully pay off past December," the trader said.

Of the vessels storing fuel oil, most have been fixed for between 30 and 90 days short-term time charter, traders said. The charterers include Lukoil's subsidiary Litasco, Trafigura , PetroChina, Koch and BP , two of the traders said, though this could not be confirmed with the relevant companies.

Onshore fuel oil stocks in Singapore, the world's biggest market for shipping fuel, stood at a record high of nearly 30 million barrels as of Sept. 16, the latest data from trade agency International Enterprise showed.

Traders expect the inventory to ease in October when fewer arbitrage cargoes are expected to arrive in Asia from the west.