SINGAPORE, (Reuters) - Saudi Aramco, a major fuel oil exporter to East Asia, has imported its first-ever cargoes of the residual fuel, taking a total of around 160,000 tonne for August and September deliveries, to meet peak summer utility demand amid a depressed global market, traders said on Friday.
The two 380-centistoke (cst) cargoes, for delivery to Rabigh, by the Red Sea, were sold from Europe by a Western trader at a discount of around $15 a tonne to Singapore spot quotes, on a cost-and-freight (C&F) basis.
"This is the first time ever that Aramco has actually bought fuel oil. It's a case of optimisation -- the market has been poor and they have cut back on their own production due to depressed prices in the face of peak summer demand," a
Singapore-based Middle East trader said.
"It's cheap to buy but bad to sell. They are still producing fuel oil but the volumes are not enough for domestic consumption so it makes sense, at this time, for them go out to the market and buy."
Both parcels, for second-half August and second-half September delivery are of unusually low-metals content and of maximum 3.5 percent sulphur.
Aramco had also called off plans to export two September-loading cargoes, totaling 160,000-200,000 tonnes, from its Ras Tanura and Jubail refineries.
Traders said the refiner was producing less cracked fuel oil via secondary units and could instead sell feedstocks such as straight-run fuel oil, which fetch better prices. "The Saudi refineries are quite sophisticated and they have that flexibility to tinker with the configuration without impacting on their overall yield volumes," another source said. "They can also sell the feedstocks, though I have not actually seen any of them hitting the market as yet."
The oil giant is the largest Middle East fuel oil supplier into East Asia, exporting 600,000-800,000 tonnes each month from three plants -- in Yanbu, Jubail and Ras Tanura – during the first-half of the year.
Exports normally fall in the third quarter when electricity demand peaks during the sweltering summer season.
The unexpected demand for fuel oil is in line with increased demand for oil products, mainly gas oil and gasoline, from the Middle East, particularly among other oil-rich countries such as the United Arab Emirates and Qatar.
The region has become a crucial swing buyer, spurred by swift economic growth and a construction boom, and its growing fuel import volumes are starting to impact on the market's demand-supply dynamics.
Aramco last exported a spot 380-cst fuel oil lot, for Aug. 21-31 loading from Jubail, to a Middle East trader at a steep discount of $18 a tonne to Singapore spot quotes, on a free-on-board (FOB) basis. This was well below the $9-$10 discount for its term deal for the first-half of the year.
The main fuel oil markets in Asia and Europe have been saddled by swelling supplies since June as European refineries cranked up production, after returning from maintenance, to yield higher gasoline volumes during the summer driving season.
More than 10 million tonnes of Western cargoes have found their way to East Asia during the June-August period, plunging the market into record-low discounts.
Differentials for the benchmark 180-cst grade had been at all-time low discounts of below $10 a tonne since Aug. 11 and closed at a record-low of $14.13 on Thursday.
The product's front-month crack spread had also sunk to all-time lows, hovering at minus $16-$19 a barrel for more than three weeks, well below the previous record of around minus $13.80.