Refiners in the Middle-East, coming back from maintenance shutdowns, are looking to Asia for buyers of prompt gas oil, putting pressure on their Singapore counterparts, traders said. They said the Middle-East refineries are cutting prices and exacerbating supply into Asia because the gas oil arbitrage to markets West of Suez will be shut in July."With the arbitrage closed to the West, there will be a build up of oil and this is the only place it can come," a trader with a European trading house based in Singapore said.
In the second quarter, at least four Saudi Arabian based refineries, including two joint ventures with Mobil Corp and the Royal/Dutch Shell Group in Yanbu and Jubail, respectively, were shut down for maintenance, reducing supplies.
But the only Middle-East refinery in turnaround now, the 330,000 barrels-per-day (bpd) Rabigh based plant in Saudi Arabia, is due to resume full operations from mid-July, traders said.
"It all looks bad. Bearish is the way to be but it's a matter of timing,"a trader with a US oil company said. It takes around 15 days for Middle-East cargoes to reach Singapore. Middle-East refiners have lowered spot premiums for July lifting cargoes to entice Asian buyers, traders said.
Cargoes of 30,000 to 45,000 tonnes of 1.0 per cent sulphur were traded recently at 35 cents per barrel premium, close to an eight-month low.
A Middle-East refinery sold gas oil to Indonesia's Pertamina, out competing Singapore refineries. It was the first direct deal Pertamina has clinched since it reviewed contracts with its Perta Oil and Indoil affiliates because of Suharto links.
Middle-East exports into Asia were rare in the first half of the year as Singapore prices slumped below those of northwest Europe, making it more profitable for Middle-East cargoes to head into Africa, the Mediterranean and Latin America.
But traders said recent pressure on Mediterranean prices, where heating oil is out of season, have reversed the East/West spread. Spot freight rates to Singapore and Indiahave risen by 25 per cent, giving time charter holders another edge in shipping products East.
Helped by the refinery production cutbacks from Singapore and South Korea, recent Asian gas oil prices have held steady around $15.50 per barrel. But at least one trader, a US oil company holding term contracts with an Arab Gulf refiner, has begun to offer Middle East origin gas oil in the Singapore market, traders said.
Supply pressure will be heightened as India, a common home for Middle-East gas oil, has been showing modest demand through its recent spot tenders, traders said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
