* Major oil companies, trade firms to expand market share
* Tight credit hits small retailers
By Jane Xie and Florence Tan
SINGAPORE, Nov 14 (Reuters) - The collapse of OW Bunker inthe wake of an alleged fraud at its Singapore trading unit willshake up the city state's more than $25 billion marine fuelmarket, the world's largest, as major companies expand and smallones shrink amid a credit squeeze.
OW Bunker, a leading supplier of marine fuel oilknown as "bunker", filed for bankruptcy in Denmark a week agoafter it revealed losses of at least $125 million at Dynamic OilTrading, prompting banks to refuse to provide new credit lines.
In a market that relies heavily on open credit, traders fearthe incident could create a domino effect, pulling morecompanies down with it.
"Credit is so tight, only the big boys will survive," saidindependent energy consultant Ong Eng Tong.
A slew of creditors have launched legal actions in Singaporeto reclaim debts, while fears of counterparty exposure havepushed up credit costs and driven bunker fuel premiums to hitmore than 2-year highs.
Fuel oil sellers are demanding payment guarantees for oilsold to bunker companies, while the cost to insure such deals isalso set to climb as claims relating to OW Bunker roll in.
Shipowners are also heading to other ports in Asia, withHong Kong sellers getting up to 20 percent more inquiries fromshipowners following OW's collapse.
The Maritime and Port Authority of Singapore (MPA) and theSingapore Shipping Association have said there was no disruptionto bunker supply in the city state.
BIG COMPANIES TO EXPAND
Backed by strong credit lines and balance sheets, major oilcompanies BP, Royal Dutch Shell and independentsGlencore, Vitol and Hin Leong could expandtheir market share, but small companies in the supply chain arevulnerable, traders said.
"Small traders, who used to rely on open credit or sleevingare the ones suffering the most," a bunker fuel trader inSingapore said.
Because of the sheer size of Singapore's bunker fuel market,with close to 43 million tonnes of oil sold last year, there aremore companies supplying ship fuel than the 63 bunker fuelcompanies licensed by MPA, traders said.
Smaller players act as retailers, borrowing credit lines andbunker delivery notes from big companies that act as middlemenfor a fee, and using the credit buy fuel oil for delivery toshipowners. The process is known in the industry as sleeving.
"It's not always a case of poor credit, more a case of riskand bringing something to the table for a counterparty," asecond bunker fuel trader said.
"This is a very competitive market and things like this canmake a difference in getting the support from a supplier."
There are no official figures on how many such firms thereare in Singapore, but a trader's estimate put it at 30 to 40.
A fuel oil trader said a shake-up in the messy industry waslong due, but others expect the business model to continue oncethe incident blows over.
"The underlying model makes money...it's still very much arelationship business," a second fuel oil trader said. "It allwill have an impact but the question is about duration. Maybe wewill see the likes of Shell increase delivered business."
Rising costs has also tweaked a peculiarity in the Singaporemarket, where oil delivered to ships is cheaper than fuel oilsold from tanks.
Delivered bunker prices are now about $8 per tonne higherthan ex-wharf fuel oil, traders said. (Additional reporting by Rachel Armstrong; Editing by AlexRichardson)
