SINGAPORE, Dec. 25 (Reuters) – At least 12 supertankers holding fuel oil and crude are anchored in south Malaysian waters, up from eight previously, as a shortage of landed tanks spurs a shift to floating storage, traders said.

More trading firms, including Swiss trader Mercuria Energy trading and Southern Petrochemical Co. Ltd., an affiliate of China's Sinopec Group, are venturing into the residual fuels market to capitalize on potentially firm trade margins.

Others like European traders Trafigura and Astra Oil are riding on the market's contango structure, where weak prompt demand encourages players to store crude supplies for future sale in expectation of a price recovery.

These traders are time-chartering Very Large Crude Carriers (VLCCs) to store fuel oil and crude due to a lack of long-term storage capacity in Singapore.

Floating storage leases also offer trading firms more flexibility.

Total commercial storage capacity in Singapore – excluding capacity held by oil majors – stands at 10.8 million cubic metres, and all existing landed tanks are currently occupied by long-term leases, industry sources said.

Attractive trading opportunities abound in both fuel oil and crude, spurring a rise in storage plays, trading sources said.

Last week, Asian fuel oil physical differentials turned positive for the first time in 1-1/2 months, and the front timespread has remained in backwardation for a fourth day, on expectations of tighter Western arbitrage supplies in January.