Singapore: Vitol, the world's top independent oil trader, will start selling delivered bunker fuel in Fujairah from the second quarter to diversify from an overcrowded East Asia fuel oil market, traders said on Wednesday.
Vitol's entry is expected to create a more competitive and transparent market, particularly in pricing, in a region dominated by a small number of Middle Eastern players, which had seen several large foreign companies faltering in their attempts.
The Swiss-based trader has the advantage of its own large storage facilities and easy access to Western fuel oil to feed the Middle East and South Asian markets that is increasingly turning to external supplies to meet its growing needs.
"It's no surprise that Vitol is going into Fujairah. From a fuel oil perspective, the Middle East is seen as a growth region, not only in its marine fuels market but the region is also seen as a viable point to supply Pakistan's growing demand," a Singapore-based Western trader said.
"The region has not been sufficiently supplied and needed to import external cargoes, especially from the West, for the first time in the past year. It's a good time for Vitol come in."
A Vitol spokesman in Singapore could not be immediately reached for comment.
Fujairah is the world's second-largest marine fuel market, handling 10 million tonnes a year, compared with around 31.5 million tonnes in Singapore.
Vitol's entry into Fujairah is facilitated by about 500,000 cubic metres of oil storage capacity at the port, part of the facilities it owns from its purchase of a majority stake in a refinery last year.
Another 560,000 cubic metres of capacity is being built for about $100 million at the 82,000 barrels per day (bpd) plant, which was restarted last month after being mothballed for about four years, a refinery official said.
The storage tanks are expected to give Vitol an advantage that eluded others such as oil majors Chevron and Shell, as well as Singapore trader Hin Leong, which exited the market after attempting to set a presence there.
Other than the bunkers market, Vitol can also target Pakistan, which sought six million tonnes of fuel oil last year, almost double the 2006 volumes of 3.1 million tonnes, all of which were supplied by Middle Eastern players Bakri and FAL Oil.
In contrast, Singapore will face a glut of storage capacity - with some 2.5 million cubic metres of new fuel oil tanks coming onstream by end-January and raising potential supply by about 60 per cent - far outstripping actual demand.
Asia's top importer China, once the largest outlet for cracked Singapore fuel oil, has slashed import volumes by over 25 per cent from 2005 to 2006 and another two per cent last year, averaging 317,000 tonnes a month.
The Middle East fuel oil market had been largely self-sufficient before last year, when growing demand from ships and utilities and a shortfall in Iranian supplies forced players to look elsewhere.
FAL Oil, Fujairah's dominant player, has since brought in at least two very large crude carriers (VLCCs) from the Caribbean and Europe as well as several Aframaxes from the Black Sea.
Vitol, which has a turn-over of about $114 billion in 2006, started selling marine fuels in Fujairah last June on an ex-wharf, or free-on-board, basis, also brought in two very large crude carriers in November, when supplies were at its tightest.
Traders said Vitol sold 600,000-700,000 tonnes of ex-wharf cargoes in the six months that it has been operating, with its monthly volumes fluctuating depending on demand, and are expected to do the same with the delivered, or cost-and-freight bunker business that forms the bulk of the marine fuels business.
"I would expect them to continue the same way - with a minimum volume of about 80,000 tonnes monthly for their delivered business," a Fujairah based trader said.