Business | Oil & Gas
Fuel oil prices surge 20% as supply tightens
Middle East fuel oil prices jumped 20 per cent this week on tight supplies due to peak summer demand for power generation and strong requirements for marine transport fuel.
- Reuters
- Published: 23:05 August 20, 2009
- Image Credit: Andrew Caballero-Reynolds/Gulf News
- Fujairah's deepwater port. Premiums for fuel oil rose as the region continued to grapple with limited supplies.
Dubai: Middle East fuel oil prices jumped 20 per cent this week on tight supplies due to peak summer demand for power generation and strong requirements for marine transport fuel.
Premiums for 180-centistoke (cst) fuel oil rose $1.50 (Dh5.5) to $9 a tonne versus levels seen the previous week, as the region continued to grapple with limited supplies.
"It's the summer, we have demand from the power sector and then you have healthy demand for bunker fuel in Fujairah," a Singapore-based trader said.
"Fuel oil is the one bright spark this year, and we are beginning to see its real value now in the summer."
Tight supply expectations for the rest of the year, run cuts in Europe, the United States and Asia, coupled with healthy demand from the Asian bunker market continues to keep fuel oil prices high.
Saudi Aramco sold 80,000 tonnes of 380-cst cracked fuel oil earlier this week from its refinery in Jubail at a premium of about $1-$2 per tonne to Singapore pricing formulas, up nearly $5 from the deal concluded.
The state oil company recently sold an August loading cargo of similar size at a discount of around $4 a tonne.
"This is a clear reflection of the state of the market, you go from discount to premium in just about a month," a Singapore-based trader said.
Besides regional demand, East Africa is also pulling barrels in an already tight market as it seeks to meet its power generation needs this summer, traders said.
"This is a really tough market, and possibly we only see prices easing going into the fourth-quarter, but if refiners keep runs low then fuel oil supply in general will stay tight."
Gasoline prices were valued at about $4.50 a barrel, broadly about 50 cents higher than the previous week, as traders anticipated demand in Saudi Arabia and Iran to remain steady.
"There shouldn't be any declines in volumes imported into Saudi and Iran this month. This should keep prices supported in the region," a trader said.
Western sanctions have so far not shut off gasoline flows into Iran.
To pressure Tehran to give up its nuclear programme, the US Senate last month voted to ban firms that sell gasoline and other refined oil products to Iran from also receiving Energy Department contracts to deliver crude to the US Strategic Petroleum Reserve.
Gas oil prices were steady with levels pegged at about $1.50 a barrel. Traders said that unlike the trend seen globally, gas oil demand in the Middle East remains fairly balanced.
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