Gulf Middle East product market tightness eased this week, with gasoline prices softening, high-sulphur fuel oil easing from 10-month highs seen last week, and fuel oil premiums dropping slightly, traders said.
Traders were awaiting the results of tenders by Iraq’s SOMO in which it is seeking 2.43 million tons of gasoline, gasoil and kerosene for the first half of 2012.
“Gasoline is softer a bit ... Supply from the east is gradually coming back,” one trader said, pointing to rising supply from fire-hit refineries in Singapore and Taiwan and the restart of India’s Essar refinery after work.
“Also Europe supply is more readily available with the United States pulling in much less gasoline,” he said.
Fuel supplies were hit hard when Shell shut its plant in Singapore in late September following a fire when Taiwan’s Formosa was still trying to restart one of two gasoline-making units after a fire in late July.
Supplies have since improved because Shell has partially restored production at its 500,000-barrel per day plant, while Formosa has restarted the gasoline unit.
“Demand in the Gulf is unchanged. Saudis are the main buyer,” another gasoline trader said. “They bought three cargoes for November delivery; one from Glencore, another from Litasco, and a third, I heard, was from BB Energy.”
A third trader said he expected SOMO to reissue the tender as the prices of fuel offered to the state-run company were higher than it had hoped.
“It is a repeat of the last one; new specs meaning higher price,” he said.
Two traders said they heard the offers to supply SOMO with gasoline were in a range of low 50s to high 70s over Middle East spot quotes.
Term negotiations to buy naphtha by Bahrain’s Bapco and Abu Dhabi National Oil Company (ADNOC) were also on traders’ minds.
High sulphur gasoil premiums softened from the 10-month highs it has seen last week on a supply shortage.
Increasingly, the refineries in the Middle East are shifting to produce gasoil with a lower sulphur content for environmental reasons but demand has not shifted as quickly as supply.
Buyers like Yemen, Sri Lanka, Somalia and Pakistan have not adjusted their specifications and their demand is enough to tighten the high sulphur market.
“The market is less tight. It has to do with the demand. I have heard deals done at $1.50 a barrel,” a middle distillates trader said.
Kuwait Petroleum Corp. late last month sold a cargo of 0.2 percent sulphur gas oil for loading in October at a premium of about $2 a barrel over Middle East quotes.
Traders expect premiums to ease going forward because seasonal gasoil demand usually falls in the Middle East in the fourth quarter.
Premiums for low sulphur gasoil, also known as 500 ppm, were stable around $3.25 a barrel.
The fuel oil market also eased in the Middle East but tightness in Asia meant cargoes were mostly shipped eastward.
Saudi Aramco sold 90,000 tons of low-density, low-viscosity fuel oil for mid-November loading, at its highest ever price level of above $20.00 a ton in premium to Middle East trader Bakri.
“Bakri needed the cargo,” a fuel oil trader said. “The market is not so tight in general.”
In Asia, the market surged on Wednesday, with the front two month spreads scaling more than 32-month peaks, as bullish sentiment pushed the contracts up by at least $2.00 a ton in a single session.