Fujairah's commercial stocks of refined oil products fell 6.6% to 19.329 million barrels in the week to Monday, August 28. They sank below 20 million barrels for the first time in 11 weeks on a decline more than 20% in light distillate stocks, as large-scale refinery shut-downs in Texas sent shock waves through global markets for oil products, especially petrol.
Total stocks at the UAE port fell despite a slight build in stocks of heavy distillate and residues, which constitute more than half the total volume of oil products stored there, data released Wednesday, August 30 by the Fujairah Energy Data Committee (FEDCom) showed.
Stocks of light distillates, predominantly petrol and naphtha, fell on the week by 1.393 million barrels, or 20.5%, to 5.394 million barrels. It was the largest weekly drop in terms of volume, and the second largest as a percentage, since S&P Global Platts started tracking Fujairah stock data in early January.
Trading sources cited naphtha volumes headed for Asia as the main driver for the draw. Naphtha demand in Asia is rising on higher petrochemical margins. The fourth quarter is typically the peak period for Asian naphtha demand, which should result in an increasing draw on Middle East supply to Asia.
HARVEY GOES GLOBAL
However, tighter global petrol supplies in the wake of Hurricane Harvey may also already be having an impact on light distillate stocks as far away as the Middle East, including at Fujairah, which during the past few years has become a major oil products storage hub for the region.
Hurricane Harvey, downgraded to a tropical storm since making landing near Corpus Christi, Texas, has lingered for days in the Houston region, bringing catastrophic floods and causing many refineries on the US Gulf Coast to shut, either as a direct result of flooding or due to safety concerns. US petrol and middle distillate supplies, and exports have consequently fallen sharply and it is still unclear when refinery operations will return to normal.
Currently, petrol is seeing some tightness globally across all major regions. Robust demand from India and the Middle East is continuing to pull petrol from Europe, the more so in the Middle East, where the region's biggest refinery, Abu Dhabi's 800,000 b/d Ruwais refinery, is undergoing major repairs, expected to last until 2019, after a January fire severely damaged a residual fluid catalytic cracking unit.
That has reduced the refinery's yields of light and middle distillates. Demand from Indonesia, the Philippines and Vietnam is drawing down gasoline stocks in Asia.
In this environment, the aftermath of Hurricane Harvey could mean European petrol drawn across the Atlantic to meet shortfalls in the US, reducing European volumes available for export to the Middle East. The result could be a further draw on gasoline stocks at Fujairah and elsewhere in the region, where petrol demand is due to start a seasonal increase as sweltering summer temperatures recede to levels more conducive to outdoor activity.
Bullish sentiment in the region's petrol market is already evident in the backwardation of first/second month time spreads for Arab Gulf petrol 95 swaps to $1.88/b, the highest so far this year.
Fujairah stocks of middle distillates also fell on the week ending August 28 by 39,000 barrels, or 1.2%, to an 11-week low of 3.148 million barrels. The hurricane-related supply disruptions to US distillate exports might mean more diesel, gasoil and jet fuel moving West of Suez.
The stream of distillate cargoes from the US Gulf Coast to the Mediterranean and Northwest Europe has all but halted in the past eight days as the storm forced the closure of US Gulf Coast terminals and ports, as well as refineries. In addition, European middle distillate stocks are low due to increased summer demand.
Fujairah's stock of heavy distillates and residues totalled 10.787 million barrels on August 28, edging up 76,000 barrels or 0.7% on the week. Demand for bunker fuel in both Fujairah and Singapore has been healthy over the past week. Fujairah 380 CST delivered bunker fuel continued to be priced at a premium of about $1/mt over Singapore, down from $2-$3/mt the previous week.
The first/second month time spread for Arab Gulf 180 CST high sulfur fuel oil swaps was pegged at a seven-week high backwardation of $1/mt, with a possible shortfall in US fuel oil exports due to the hurricane seen as a key supporting factor.
At the same time, fuel-oil demand in the Middle East has been more robust than usual this summer because Saudi Arabia has been substituting fuel oil for part of the crude it burns at its power stations in summer to support peak demand for electricity to run air-conditioning. The kingdom does not have enough gas to meet peak summer demand from its predominantly thermal power plants while also supplying increasing direct demand for gas from its industrial and petroleum sectors.
Nonetheless, with summer drawing to a close, reducing local fuel oil demand, the Middle East will be well positioned to export the product in the coming weeks and months. Moreover, S&P Global Platts has estimated that about 230,000 mt/month of petrol production capacity has been lost at Ruwais since January due to the fire, which means a substantially increased yield of fuel oil from the refinery if crude processing remains constant.
Transforming the energy sectorSpearheading the UAE's new gas chapter IMO sulphur fuel cap: what now? An international concept in a captive market South Africa's newest energy asset Africa breathes a sigh of relief Achieving better risk prevention in Chinese terminals One gauge, double the protection Tank jacking: reviving an ageing asset Digitalisation: future-proofing terminal operations