Saudi Arabia's A-960 fuel oil is a sought-after feed stock for lubricant production and for refinery crackers for reprocessing into more expensive light and middle distillates.

But the $1.5 billion revamp of the Ras Tanura refinery will result in the complex producing cracked fuel oil instead of the more valuable A-960 grade.Until the revamp, Ras Tanura exported six to eight million tonnes per year of A-960 fuel oil.

Traders said the change will lead to an increase in the supply of cargo-grade fuel oil, which might lead to a long-term narrowing of the 180/380-centistoke (cst) spread, they said.

Industry sources said many lubricant plants and residual crackers in Asia, including those in Australia, Singapore, Thailand and New Zealand, use A-960 as a feedstock.

The traditional buyers of A-960have therefore switched to alternative straight run fuels, or decided to process more Arab Light crude within their own systems in order to produce their own A-960 feedstock fuel oil, they said.

Refiners, which already process a lot of Arab Light, might now be tempted to segregate the A-960 feed from the refinery and sell it into the commercial market if demand and prices pick-up significantly.

They said one such refiner, Ssangyong Oil, was until about three years ago a regular supplier of K-960, the Korean equivalent of A-960, but stopped after the fuel failed to garner high enough premiums to pay for the extra logistical costs involved in segregating the fuel at the refinery.

A-960 is sometimes, depending on market conditions, sold into the merchant fuel oil market where it is dumped into the bunker pool or used for power generation.

The work at Ras Tanura includes raising topping capacity to 300,000 barrels per day (bpd) from 265,000 bpd and building a 60,000-bpd vis breaker and a 40,000-bpdhydrocracker.

The refurbishment was expected to be completed in July but industry sources said a one-month delay is on the cards. "For a project of this magnitude, there are bound to be delays. We are looking at an August start up," one Gulf source said.

He said Saudi Aramco had sold spot A-960 for lifting in July as most of its term contracts ended in June. The upgrading of the refinery will raise diesel or gas oil production to 126,000-bpd from 97,000-bpd, and gasoline to 115,000-bpd from 57,000-bpd, Aramco officials said.