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Asian oil round-up

August 23, 2011

Saudi Aramco sells low-viscosity fuel oil at 6-year high premiums - File photo

SINGAPORE: Saudi Aramco has sold up to 90,000 tonnes of high-grade fuel oil, for September loading, at more-than six-year high premiums, amid a persistently tight market, industry sources said on Tuesday.

The low-density A961 parcel of low 180-centistoke (cst) viscosity, for Sept. 5-7 loading, was sold to Bakri at a premium of $7.00-$8.00 a tonne to Singapore spot quotes on a free-on-board (FOB) basis, its highest level since at least January, 2005, Reuters data show.

The cargo is expected to remain in the Middle East market, which has been severely short of on-specification supplies for the past two months and has soaked up all 250,000-300,000 tonnes of September-loading lots that have been offered by Aramco so far.

“The market's been tight for two months, and the A961 cargo is perfect for blending down high-viscosity, high-density materials, so it's no surprise that someone paid up for it,” a Singapore-based Western trader said.

“It's the highest transaction level that I can remember, but at least, that is mitigated by lower freight. At these premiums, the cargo is definitely staying in the Middle East, especially since demand is also stronger for lower-viscosity cargoes there.”

Both the East Asian and Middle East markets have been tight since the start of the month, and are expected to remain tight through all of September at least.

The tightness has seen more than 70 percent of the 950,000-1 million tonnes of spot cargoes offered by Middle East suppliers, from August-loading until the current early September lifters, snapped up by players who have operations in the Middle East at high price-levels.


Another parcel is on offer -- ExxonMobil has offered 90,000 tonnes of 700-cst for Sept. 14-16 from its joint-venture Samref refinery in Yanbu, FOB, with a deal expected by Thursday.

Traders said this parcel could end up in East Asia because its high-viscosity properties would make it less attractive to Middle East players.

Just a week ago, ExxonMobil last sold a similar lot, for Sept. 3-5 lifting, with an accompanying low-viscosity light-cycle oil (LCO) blendstock, to Bakri at a discount of $17.00-$18.00 a tonne to spot quotes, FOB.

The tight market is mainly due to a massive drop in export volumes from Iran, which are usually high-grade low-density, low-water parcels, for August- and September-loading parcels, which resulted from disruptions to its domestic natural gas supplies.

Middle East inflows into East Asia for August closed at 650,000-700,000 tonnes, down about 40-45 percent from July and below the monthly average of just over a million tonnes, Reuters data show.

Iranian supplies into East Asia are at less than 300,000 tonnes for this month and the next, down from a monthly-average of 550,000-600,000 tonnes since the start of the year, causing supply imbalances between blend-stocks and raw cargoes.

The Middle East market was also squeezed due to strong demand particularly from Pakistan, which has bought a monthly average of 600,000-650,000 tonnes of low-viscosity cargoes, up until July, mainly from the Middle East.

Reflecting the strong market, fuel oil's prompt time-spreads have been steeply backwardated at around $5.00 a tonne for over a week, since just before the September pricing month started.