Saudi Arabia to keep fuel oil exports on ice after summer
Saudi Aramco won't sell any spot fuel oil after its peak summer demand season, on rising requirements from domestic utilities and new secondary refining units, traders said on Tuesday.
By Agencies |
SINGAPORE:Saudi Aramco won't sell any spot fuel oil after its peak summer demand season,on rising requirements from domestic utilities and new secondary refining units,traders said on Tuesday. Saudi Arabia's state oil firm, which typically offersat least two 80,000 tonne parcels of fuel oil onto the spot export marketmonthly outside the summer period, will absorb these parcels for its domesticmarket.
This could furthertighten the fuel oil crack against Dubai crude, which has halved since the startof the month on prospects of smaller flows from the West. "We are hearing thatthey will not be offering the usual one or two cargoes in the spot marketbecause of growing domestic demand from the power sector," a Singapore-basedfuel oil trader said.
As MiddleEast oil-producing economies surge, their demand for utility fuel used byindustries has ballooned. Demand for electricity across the Gulf CooperationCouncil (GCC) is growing at an annual rate of around 8 percent. Gas projectshave failed to keep up with demand for electricity production.
Apart from Qatar, all Gulfstates are short of gas. Traders said they were still uncertain how long thehalt on fuel oil exports would last. But most said they were planning for it torun through the end of the year at least. "We don't have a sense if this isgoing to go beyond December but we will plan for it," a trader said.
Aramco, the largest fuel oilexporter from the Middle East into East Asia, usually offers the 380-centistoke(cst) grade fuel oil parcel from its joint-venture refinery in Jubail or the180-centistoke (cst) lot from its Ras Tanura oil processing facility into thespot market.
NEW UPGRADINGCAPACITY
A total of 318,000barrels per day (bpd) of new secondary refining capacity is coming online inSaudi Arabia in the fourth-quarter at PetroRabigh, a joint venture betweenAramco and Japan's Sumitomo Chemicals <4005.T>. The new upgrades will cutfuel oil production and exports as the units convert the dirty leftovers ofrefining into higher value clean products, a senior company official fromPetroRabigh said earlier this month.
The upgrade will include a60,000 bpd gasoline making unit, a 200,000 bpd vacuum distillation unit, a92,000 bpd catalytic cracking unit and a 26,000 bpd alkylation unit. Traderssaid that the lower fuel oil exports from Saudi Arabia could further thin outsupply flows into Asia.
"As itis we are expecting thinner flows from the West into Asia, over the next fewmonths, lower Middle East exports will only aggravate the situation," a fuel oiltrader with an oil major said. Western arbitrage flows into Asia for July werepegged at around 1.83 million tonnes, with August arrivals expected to be about1.9-2 million tonnes, around a third less than the monthly average in the yearto date.
"The tighter flowsfrom the West along with the loss of supplies from Saudi Arabia will keep themarket fairly supported," a trader said. Reflecting the tightening fuel oilmarket, the differential to Dubai crude on Tuesday settled at a discount ofaround $12-$13 a barrel. This is a drop of nearly 50 percent from crack valuesseen earlier this month.
"Ifwe continue to see the supply situation into Asia get squeezed, the cracks aregoing to really firm up, possibly even up to minus $10 or $11," a tradersaid.
This could furthertighten the fuel oil crack against Dubai crude, which has halved since the startof the month on prospects of smaller flows from the West. "We are hearing thatthey will not be offering the usual one or two cargoes in the spot marketbecause of growing domestic demand from the power sector," a Singapore-basedfuel oil trader said.
As MiddleEast oil-producing economies surge, their demand for utility fuel used byindustries has ballooned. Demand for electricity across the Gulf CooperationCouncil (GCC) is growing at an annual rate of around 8 percent. Gas projectshave failed to keep up with demand for electricity production.
Apart from Qatar, all Gulfstates are short of gas. Traders said they were still uncertain how long thehalt on fuel oil exports would last. But most said they were planning for it torun through the end of the year at least. "We don't have a sense if this isgoing to go beyond December but we will plan for it," a trader said.
Aramco, the largest fuel oilexporter from the Middle East into East Asia, usually offers the 380-centistoke(cst) grade fuel oil parcel from its joint-venture refinery in Jubail or the180-centistoke (cst) lot from its Ras Tanura oil processing facility into thespot market.
NEW UPGRADINGCAPACITY
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A total of 318,000barrels per day (bpd) of new secondary refining capacity is coming online inSaudi Arabia in the fourth-quarter at PetroRabigh, a joint venture betweenAramco and Japan's Sumitomo Chemicals <4005.T>. The new upgrades will cutfuel oil production and exports as the units convert the dirty leftovers ofrefining into higher value clean products, a senior company official fromPetroRabigh said earlier this month.
The upgrade will include a60,000 bpd gasoline making unit, a 200,000 bpd vacuum distillation unit, a92,000 bpd catalytic cracking unit and a 26,000 bpd alkylation unit. Traderssaid that the lower fuel oil exports from Saudi Arabia could further thin outsupply flows into Asia.
"As itis we are expecting thinner flows from the West into Asia, over the next fewmonths, lower Middle East exports will only aggravate the situation," a fuel oiltrader with an oil major said. Western arbitrage flows into Asia for July werepegged at around 1.83 million tonnes, with August arrivals expected to be about1.9-2 million tonnes, around a third less than the monthly average in the yearto date.
"The tighter flowsfrom the West along with the loss of supplies from Saudi Arabia will keep themarket fairly supported," a trader said. Reflecting the tightening fuel oilmarket, the differential to Dubai crude on Tuesday settled at a discount ofaround $12-$13 a barrel. This is a drop of nearly 50 percent from crack valuesseen earlier this month.
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"Ifwe continue to see the supply situation into Asia get squeezed, the cracks aregoing to really firm up, possibly even up to minus $10 or $11," a tradersaid.
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