October 19, 2011 [Reuters] - Oil major BP has started trading fuel oil in the Middle East, taking about 200,000 cubic metres of storage in the United Arab Emirates port of Fujairah that became operational at the beginning of the month, traders said on Wednesday.
The oil major also bought 80,000 tonnes of cracked 380-centistoke (cst) fuel oil from Kuwait Petroleum Corp. (KPC), for Nov. 14-15 loading from Shuaiba, which traders said is for its Middle East business.
“Like everyone else here, BP’s business model in the Middle East is two-pronged — one to provide more flexibility to their global fuel oil business, allowing them to swing barrels more efficiently between Europe and East Asia,” a Singapore-based Western trader said.
“The other would be to sell into the Fujairah bunkers market and into Pakistan as utility fuel, where demand has been growing impressively over the last three years.”
BP joins other international trading companies such as fellow major Shell, European traders Vitol and Trafigura, as well as Singapore-listed Chemoil, that have established a presence in the fuel oil market in the region in the past 1-2 years, alongside local players such as Bakri and FAL Oil.
Others such as Russian traders Gunvor and Litasco, the trading arm of LUKOIL, as well as U.S. major ConocoPhillips and Chinese major PetroChina, are also looking to start trading fuel oil in the region next year.
The three companies have also taken up storage space, together with BP, at the joint-venture Vopak-Horizon oil terminal that is expanding its current capacity of 1.5 million cubic metres (cu m) by about 40 percent, or 600,000 cu m.
PetroChina is looking to start trading marine fuels and is looking for onshore storage tanks, after earlier plans to build its own tanks stalled, a source with direct knowledge said.
EXPANDING STORAGE CAPACITY
The influx of traders will see the region’s storage capacity expand by about 25 percent to about 4.8 million cu m by the end of next year, up from 3.6 million cu m currently.
The Middle East sees about 1.5 million tonnes of demand from the Fujairah marine fuels market, the world’s third largest with steady volumes of 800,000-900,000 tonnes a month, and the Pakistan utility market.
One main reason for the influx is the strong growth in Pakistan demand, which rose by about 15 percent from last year to a monthly average of 600,000-650,000 tonnes for this year.
BP has not been trading fuel oil in the Middle East for over 10 years, and the current activities in the region are directed by its Asian headquarters based in Singapore, traders said.
The Asian market has been strong for over a month due to tight supplies of on-specification cargoes, keeping fuel oil’s prompt timespreads at steeply-backwardated levels of $8.00-$9.00 a tonne, while cash differentials have also held at double-digit premiums.
The Middle East market has weakened in the past week or so, with demand from both its main outlets easing, traders said.
Pakistan’s demand for fuel oil has been dampened by heavy rains that has led to more hydropower generation, as well as floods in some parts of the country that has prevented the transportation of cargoes from the receiving port in the south to where they are needed in the north.
As a result, Pakistan State Oil (PSO) is seeking less volumes, of 780,000 tonnes for November-January delivery, in its latest tender, which closes on Nov. 24.
The floods have also forced PSO to defer the arrivals of at least four of the 65,000-tonne cargoes from this month to the next, resulting in the lower tender requirements, traders said.
Prices in the Fujairah bunkers market have also fallen in the past week, with prices for 380-cst lots dropping to $5.00-$8.00 a tonne below levels for Singapore marine fuels, falling from about $5.00 above before the start of October.
