Saudi Arabia, the world’s largest oil exporter has awarded up to 400,000 tonnes of cracked fuel oil from its joint venture refinery with Royal Dutch Shell in Jubail to the oil major’s Middle East trading arm, traders said on Friday.
Shell International Trading Middle East (SITME), purchased the 180-centistoke (cst) fuel oil cargoes at a premium of around $9 to $11 to the Singapore 380-cst benchmark, traders said.
“This was pretty high, but there is no way to compare it against similar cargoes from Jubail, because this was the first time they’d offered 180-cst,” a trader said.
The rare tender sale of the low viscosity, low density residual cargoes was expected to be shipped into Singapore, where it is likely to be used for blending. An emerging shortage of such blending components has lifted Asian fuel oil prices.
The front-month timespreads for 180-cst closed at $3.50 a tonne on Thursday, the widest it has been since March 18, Reuters data showed. The strengthening timespread reflects a market that is beginning to price in an anticipated shortage through the end of May.
“Singapore, is short (low) density now, and with the heavy arbitrage flows coming in from the West, there is going to be quite a bit of demand for such materials,” a Singapore-based trader said.
Western arbitrage supply flows into Asia for April and May are expected to total up to 10 million tonnes, traders said.
Most of the volume that is set to arrive here in the region is likely to be high viscosity material that will need to be heavily blended before it can be sold to specifications into Singapore or to China, traders said.
Traders said regional refiners could also start to capitalise on the demand for low density fuel oil blending components. Sri Lanka’s Ceylon Petroleum Corp (Ceypetco) issued a rare tender to sell a low-density 180-cst cargo earlier this month. The cargo is scheduled for loading in May.