July 17, 2009 at 12:20 am #3054
Asia-Wide Refinery Output Cut Causes Marine Fuel Oil Shortage
By Yuji Okada
July 17 (Bloomberg) — Marine fuel oil supplies in Singapore, the world’s largest bunkering port, have plunged as oil refiners across Asia cut output, according to official figures and traders.
The shortage reduced Asian benchmark fuel oil’s discount to Dubai crude, or the crack spread, to $1.636 a barrel on July 15, the narrowest since Feb. 11, 2004, according to Bloomberg data.
The fuel oil inventory in Singapore, Asia’s biggest oil- trading center, was 14.1 million barrels in the week ended July 15, 38 percent lower than a year earlier, said International Enterprise Singapore, a unit of the trade ministry. Refiners in South Korea and Japan are cutting crude throughput after the recession reduced demand, leading to high product stockpiles and reduced margins.
“The narrowing fuel oil crack in Singapore was mainly caused by the refinery run cut among Asian refiners, particularly ones in Japan and South Korea,” said Akira Kamiyama, a Tokyo-based trader at Mitsui & Co. “Refinery utilization rates in these countries have been around 70 percent, while rates in the U.S. have been close to 90 percent.”
The refinery operating rate in Japan was 64.1 percent for the week ended June 20 and rose to 70 percent for the week ended July 11., according to the Petroleum Association of Japan.
Nippon Oil Corp..Japan’s largest refiner, is cutting oil processing by 24 percent in July from a year earlier to tackle weak demand. The cut includes a plan to shut a 110,000 barrel-a- day crude distillation unit, an unusual measure as Japanese refiners typically run refineries flat out in July to meet peak gasoline demand in August.
Utilization in the U.S. stood at 87.9 percent for the week ended July 10, according to the Department of Energy.
Weak Gasoil Crack
Contrary to fuel oil, Singapore gasoil’s premium to Dubai crude shrank to an average $7.53 a barrel in the year to July 16 from last year’s average of $25.717 a barrel.
“The influx of gasoil exports into Europe from the U.S., which was a consequence of the high utilization rate in the U.S. and low rate in Europe, snatched gasoil export opportunities off Asian refineries and put pressure on the Asian gasoil crack,” Kamiyama said.
Fuel oil’s crack, a measure of the profit or loss from refining crude, was also supported by steady marine fuel demand in Singapore, which was less affected by the recession than other oil products, said six traders surveyed by Bloomberg News. Lack of marine fuel supplies at ports in Japan and South Korea forced ship owners to take more fuel in Singapore, they said.
Sales of marine, or bunker, fuel rose 5 percent on year to 2.96 million metric tons in June, the Maritime & Port Authority of Singapore said.
Another factor curbing supplies was delayed fuel oil arrivals from the Caribbean and Europe, known as arbitrage cargoes, the traders said.
“Arbitrage cargoes are now expected to bring as much as 3 million tons in July, while they were originally forecast at around 3.5 million,” said Yasuhito Imaizumi, bunker trading manager at Petro Summit Pte. in Singapore, a subsidiary of Sumitomo Corp. “What caused the delay was a rise in tanker rates in late June. Traders became hesitant about hiring vessels.”
The London-based Baltic Exchanges’s benchmark rate for very large crude carriers, or VLCCs, for the Saudi Arabia-to-Japan route fell to 30.83 Worldscale points yesterday after rising to 54.66 Worldscale points on June 24 because demand for vessels dropped.
Change Creates Fear
“Each arbitrage cargo in Singapore has become much bigger, from the 80,000-ton Aframax-sized tanker to the VLCC tanker that can carry 250,000 tons,” said Kazuto Ishida, a Tokyo-based fuel oil trader at Hanwa Co. “The change has produced fears about the insecurity of the market because a single delay costs a supply reduction of 250,000 tons.”
The fear has been a psychological prop for the price of Singapore fuel oil, Ishida said.
The U.S. will probably remain as a supply source of gasoil to Europe until European refiners increase their refinery utilization rate to begin heating oil stockpiling ahead of winter demand season, Kamiyama said.
“That means Asian refiners have to stick to a low run rate to bear with the weak Asian gasoil crack at least for another month or so,” said the trader. “Fuel oil supplies from Asian refiners won’t immediately improve.”
To contact the reporter on this story: Yuji Okada in Tokyo at email@example.com.
July 17, 2009 at 12:24 am #6067
FYI – this will likely cascade into Global Bunker & Asphalt markets since most Global refinery capacity is also cutback to min levels – fortunately it is near middle of peak shipping and paving markets and nto the beginning.
Although this will produce a price spike it is unlikely to yield any additional supply since the bottom products are alls less than the price of crude oil – not a good position when margins are bad enough to have some of higher cost & smaller refineries sutting down globably. Hi prices often go along with low supply.
I saw an earlier news item also about Kuwait cutting back crude & products into China. This also feeds some of smaller independent China Fuel Oil & Asphalt producers, which will also amplify some demand increase.
It goes without saying that what increases HFO,Asphalt & ect prices will be bad for coker margins since the delta between the upgrade to gas/diesel gets decreased due to higher value of fuel oil products. The same goes f
September 23, 2009 at 6:37 am #5992
This post was deleted. It was not on topic. Let’s keep it to the coker.
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