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Commodity trading firm Noble Group looks set to begin operating as a physical fuel oil trader following news that the company has employed at least five traders, Reuters reports.

The company is expected to begin its fuel oil business on April 1st after reportedly hiring five former Trafigura traders who have left the global trading house over the past 12 months. They are expected to be based in the three trading centres of London, Singapore and New York.

It is thought that Trafigura's former global head of fuel oil, Magd Mohafell, will head the team, Reuters said.

When asked about the move, Noble Group's Chief Operating Officer Ricardo Leiman said "The Noble Group has a long-term strategy and will continue investing selectively in the downcycle in people and assets. We want to expand our energy business globally and will continuously look at synergizing our energy assets."

Noble Group's decision to enter the fuel oil market comes at a time when many firms are either downsizing or have stopped trading physical fuel oil. The current global economic downturn has led to plunging trading volumes and severely affected liquidity in the commodity markets. This has forced a number of traders and brokers of energy products to either look at new revenue streams or close down operations.

In November 2008, StatoilHydro ASA announced that it would be scaling down its oil product trading activies and, as a result, would be shutting its fuel oil trading operation in Singapore.

Another firm, Hong Kong-listed Titan Group also stopped trading physical fuel oil last year, saying the business was 'capital intensive and exposed to risks associated with market volatility'.

It is thought that Noble Group's entry into the fuel oil market may be linked to the expectation that refinery upgrade projects in Asia and Europe may potentially lead to high trading margins due to tightening supplies of residual fuel.

So far, however, the recent increase in fuel oil supply capacity in Asia following the opening of new terminals over the past 2 years has not been matched by a similar rise in demand.

The fuel oil market, which is dependent on demand for marine fuel, has seen sales of bunker fuel plummet as a consequence of the economic downturn. In February 2009, bunker sales in Singapore fell by 349,700 tonnes compared to to the previous month, according to data released by the Maritime and Port Authority of Singapore (MPA). Sales of only 2,670,000 tonnes were less than every monthly total recorded in 2008.

However, despite an anticipated demand slowdown, particularly from the bunker market, tightening supplies have offered support. At the same time, a number of refineries in China, India, South Korea and Malaysia are planning to upgrade over the next two to three years to allow them to raise production of higher-value products such as gasoline and diesel at the expense of fuel oil.

As part of the company's fuel oil strategy, Noble is reported to be currently seeking a long-term storage lease. However, with all existing storage tanks said to be already on long-term leases, it is thought that Noble will either lease floating storage off Malaysia or take up a short-term lease from another trader that is not fully utilising its tanks.