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* OW Bunker is major shipping fuel supplier
* Traders fear owed money is lost, scramble for new deals
* Case could be one of Singapore's biggest trading scandals10 yrs
By Jane Xie and Jessica Jaganathan
SINGAPORE, Nov 7 (Reuters) - Traders and shipping companiesscrambled to source fuel and take over supply contracts onFriday after Danish marine fuel supplier OW Bunker saida suspected fraud at its Singapore subsidiary had pushed it tothe brink of bankruptcy.
The alleged fraud at Singapore-based Dynamic Oil Trading ispotentially one of the biggest financial market scandals to hitthe city state since 2004, when China Aviation Oil (Singapore)ran up oil futures losses of $550 million.
Denmark's Berlingske newspaper cited OW Bunker chairmanNiels Henrik Jensen as saying Dynamic's head Lars Moller andsome of his colleagues arrived unexpectedly at OW Bunkerheadquarters in Norresundby, Denmark, this week and explainedthe situation to chief executive Jim Pedersen.
"What we know is based on his own testimony," Berlingskequoted Jensen as saying. Danish state television, citing unnamedsources, said Dynamic's management denied any involvement infraud.
Moller could not be reached for comment at Dynamic's officein Singapore on Friday, and no-one was present at his home in aluxury condominium near the city-state's Botanic Gardens.
OW Bunker, Denmark's third largest company by revenue, saidon Thursday that investors needed to assume that the company'sequity has been wiped out due to losses at Dynamic estimated tobe around $125 million.
The company did not give any details of the alleged fraud,but several traders said the problem was likely related to therecent sharp fall in oil prices.
Benchmark Brent crude oil futures have dropped almost 30percent in value since June to levels last seen in 2010 asrising supplies clash with cooling demand.
"I assume they were very long on their hedges so sufferedlosses when oil prices came down," said one trader who has hadcounterparty positions with OW Bunker.
Taking a long position requires an investment into aproduct, such as oil, benefiting from rising prices, meaningthat a trader with a long position makes a loss if prices fall.
The company, whose shares have been suspended, said it hadfired its head of risk management.
DOMINO EFFECT?
OW Bunker is estimated to have about 7 percent of the globalmarket for bunker, a liquid fuel refined from crude oil and usedto power ships, competing with companies such as World FuelServices Corp, Chemoil Energy and Aegean MarinePetroleum Network.
Traders said refineries and other shipping fuel supplierswere cutting deliveries and were likely to cancel long-termcontracts with the Danish company.
On Friday at Dynamic's office in Singapore, trading deskswere largely empty while the few staff who were present toldReuters reporters they were waiting for instructions fromheadquarters.
Two people who visited the office, on the 11th floor of theart-deco inspired Parkview skyscraper, told Reuters theirSingapore-based firm had supplied Dynamic with oil and they werewaiting to see whether they would be paid.
Legal sources in Singapore said that they had receivedseveral calls from counterparty firms concerned about what theycould do to ensure payment for their trades with Dynamic.
Singapore Police Force's white collar crimes unit declinedto comment on whether they were investigating.
A bunker fuel trader in Europe said that many vessel ownersand operators were cancelling their orders with OW Bunker, butthat the fallout in the market would still be huge if thecompany went down without paying out its existing positions.
"This will have a huge impact on the market. It's notimpossible that this will have a small domino effect. If they gobankrupt, financially less secure players will also gobankrupt," the European bunker trader said.
"These guys were huge worldwide players," the trader added.
OW Bunker supplies 100,000-200,000 tonnes of fuel per month,worth up to $118 million a month in current market terms, in theSingapore market, according to bunker trading sources.
Two Dynamic Oil traders, who were not authorised to speak tothe media, said the issue was likely related to the recent pricedrops in oil-related products that the company specializes in.
"I think also some risk management happening due to rapidlyfalling oil prices so we had some paper losses. I think thepaper loss was quite a lot," one trader said without givingexact figures.
The trader also said that his desk was not taking in neworders, but that they were still trading on existing deals as ofThursday.
(Additional reporting by Jacob Gronholt-Pedersen and TheodoraD'Cruz in Singapore; Writing by Henning Gloystein and RachelArmstrong; Editing by Alex Richardson)
