SINGAPORE: Pakistan State Oil has purchased 700,000 tonnes of fuel oil for delivery from April to July at more than $7 a tonne over its last purchase due to a supply shortage of low-density blending components in Asia, traders said on Tuesday.
The state firm purchased its entire tendered requirement of 520,000 tonnes of high-sulphur fuel oil at a premium of about $21 over the Middle East benchmark on a free-on-board (FOB) basis, versus a premium of around $14 a tonne in a transaction earlier this year, traders said.
Pakistan had to pay the higher price as it typically requires lower viscosity 180-centistoke (cst) residual grade fuel oil with a density of 0.96, traders said.
“The market has been tight on density, and obviously there is a certain premium attached to the final transacted price,” a Singapore-based trader said.
“But they are also buying the oil at a time when the flat price is down under $600 that creates plenty of incentive for any buyer, despite the prevailing premium attached.”
Fuel oil prices for the benchmark 180-cst grade, have fallen more than $67 since mid-February when they hit their highest levels for the year so far, Reuters data showed.
The drop in outright prices has mainly been driven by the deep dive in crude oil benchmarks triggered by uncertainty over oil demand growth from the world’s largest consumers, the United States and China.
Brent crude, which was trading under $100 on Tuesday, has fallen more than 10 percent since early April.
“The upside to the lower (outright) price is that we should see more demand emerging from countries like Pakistan where a low price point entry is extremely important,” a Middle East based trader said.
Pakistan also purchased 180,000 tonnes of low-sulphur fuel oil at a premium of $113 over the Middle East benchmark.