Fujairah's commercial stocks of refined oil products fell 8.1% to 20.685 million barrels in the week to Monday (August 21), sinking to a nine-week low.
The decline in total stock levels was on the back of large draws in inventories of middle and heavy distillates, which both fell to their lowest level in more than two months, data released on August 23 by the Fujairah Energy Data Committee (FEDCom) showed.
However, stocks of light distillates, predominantly petrol and naphtha, rose by 371,000 barrels, or 5.8%, to 6.787 million barrels, remaining close to the average for the past six weeks of 6.64 million barrels. While the Asian petrol market remained steady, the Middle East petrol market continued to find near-term support from tighter supply both east and west of Suez due to a spate of fires at key refineries.
In particular, the PetroChina refinery at Dalian, China, and the GS Caltex refinery at Yeosu, South Korea, were expected to reduce reduce petrol output for a period following recent incidents, mainly affecting supply in the Asian market.
The fire last Thursday at the Dalian refinery in northeastern China, one of the country's largest, broke out in the plant's 1.4 million mt/year residue fluid catalytic cracker, which produces mainly petrol. The Caltex refinery, South Korea's second largest, shut a heavy oil upgrading unit after a fire broke out in the 66,000 b/d vacuum residue hydrocracker at its complex in Yeosu, resulting in a loss of light and middle distillate production capacity.
That confluence of events could potentially draw more petrol barrels eastwards from the Middle East and India, reversing the previous stock build in light distillates seen at Fujairah over the previous three weeks.
First month/second month time spreads for Arab Gulf petrol 95 swaps were at a firmer backwardation, up to $1.77/b this week -- the strongest seen so far this year.
PERNIS ARBITRAGE PULL PETERS OUT
Stocks of middle distillates at Fujairah totaled 3.187 million barrels on Monday, August 21, a 10-week low, following a sharp 21.1% drop week on week. Local sources cited strong demand from the Persian Gulf region as the main driver for the 852,000 barrels draw. That was most likely to have been related to continued high temperatures throughout the region extending the summer peak demand period for electricity to run air conditioning. That may have caused some Arab states with insufficient gas supplies to turn to diesel and gasoil as short-term fuels for power generation.
Interest to move arbitrage volumes of gasoil and jet fuel to Europe has cooled. The temporary pull created by the recent outage at the Pernis refinery in the Netherlands has now ended. The East-West Gasoil exchange of futures for swaps was pegged Tuesday, August 22 at the lowest level seen so far this month, indicating no arbitrage opportunity to move gasoil west. At the same time, the Asian gasoil market was seen as oversupplied due to weaker seasonal diesel demand in a number of countries.
The first month/second month time spread for Arab Gulf gasoil swaps was pegged at 3 cents/b Tuesday, and could flip into contango if the current oversupply in Asia persists.
Fujairah's stocks of heavy distillates and residues, which make up more than half the oil product volumes stored at the UAE Arabian Sea port, fell 1.348 million barrels, or 11.2%, week on week to a 12-week low at 10.711 million barrels. Stock levels remained close to totals seen in recent weeks.
The week's substantial draw was attributed mainly to a number of fuel oil shipments to Pakistan. Local sources said such shipments accounted for up to half the recent volume departing from Fujairah.
Demand for bunker fuel in Fujairah was reported as improving in recent days, after weeks of being seen as lackluster. Fujairah 380 CST delivered bunkers were assessed at a premium of $2.50-$3.00/mt over Singapore this past week, having been at a discount for most of the previous month. The first month/second month time spread for Arab Gulf 180 CST HSFO swaps was pegged at a backwardation of 35 cents/mt.
Sentiment in the Singapore fuel-oil market was tentative amid uncertainty over September arbitrage supply. Supply from the Middle East was seen rising in September as power generation demand eases from its summer peak. Abu Dhabi National Oil Company, in particular, was expected to offer additional straight run fuel oil via tender. ADNOC should be well positioned to make such offers as a January fire at its 800,000 b/d Ruwais refinery, the Middle East's largest, severely damaged a residue fluid catalytic cracking unit, with the result that refinery yields have shifted toward the heavier end until repairs are completed in 2019.
S&P Global Platts estimated about 230,000 mt/month of petrol production capacity was lost at Ruwais due to the fire, which would mean a substantially increased yield of fuel oil if crude processing remained constant. The full effect of the lengthy repairs at Ruwais may be about to become apparent in the region as Middle East fuel oil demand was expected to begin its seasonal downturn in September. That could lead to increased fuel oil stock levels later in the year.
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