Rising summer electricity, vehicle and jet fuel demand in the run-up to Ramadan have boosted fuel premiums in the Middle East Gulf and are likely to support prices throughout the holy month, traders said.
The regional fuel oil market is supported by lower supplies from Iran and high demand from Saudi Arabia, but recent strength in the naphtha market is not expected to last, with weak demand from the petrochemical sector seen weighing on prices.
Robust seasonal demand and Ramadan being due to start around July 20 have pushed premiums higher and are likely to keep upward pressure on prices through late August.
Demand from Saudi Aramco, which has bought at least 750,000 tons for the whole of June and July, is a big driver. Diesel demand typically spikes in summer, when temperatures in the Gulf soar, boosting electricity demand for air conditioning.
Premiums for low-sulphur gasoil, also known as 500 ppm, are around $4 to $4.40 a barrel, while for higher sulphur grades like 0.2 it’s at around $2.75 a barrel. These are about 20 to 30 cents higher than prices for June.
Yemen’s high-sulphur diesel demand and Jordan’s import tenders are other factors keeping the market firm. East Africa is also expected to come back to the market with gasoil and gasoline tenders soon.
But high prices also seem to be limiting the number of deals done, traders said.
“Premiums are too expensive and doing business on a spot basis is very difficult,” one middle distillates trader said.
“I would expect gasoil premiums to soften a bit from the last week of August,” he added.
Increased travel in the region has boosted jet fuel demand and is likely to result in lower jet fuel exports, traders said.
“Traffic is continuing to rise sharply in the UAE and started to increase in Saudi, driven by the holy month of Ramadan,” another trader said.
The naphtha market has been briefly lifted by tight supplies and traders see strength continuing into July. But fundamentals do not look strong enough to support premiums for long.
“The petrochemicals market is not encouraging so we will see lower bids on naphtha tenders for cracker feed stock,” one naphtha trader said.
Analysts said the weak naphtha market in June saw large spot volumes flowing out of the Middle East, as some Asian buyers took fewer cargoes under long-term contracts due to high prices.
Saudi Aramco, Asia’s biggest naphtha supplier, has sold up to 600,000 tonnes for July for premiums around $15 per ton above Middle East quotes, an unusually high volume.
But the main naphtha exporters in the region -- Saudi Aramco, KPC and ADNOC - concluded their term contracts with high premiums of $24 to $33 a ton over Middle Eastern quotes, with many petrochemicals buyers lifting cargoes directly from the refiners rather than from trading houses.
Summer demand also supported gasoline demand in the region, with traders expecting Kuwait to come to the market as the country’s biggest refinery is partially shut for maintenance.
Saudi Arabia and the United Arab Emirates are the main drivers of demand in the region.
Currently premiums for a 95 RON gasoline cargo from India to the Gulf is around flat over Mops95 while over benchmark naphtha quotes in the Gulf it is at around $160 to $170 a ton.
Higher demand from Saudi Arabia to meet soaring power demand coupled with lower fuel oil exports out of Iran due to sanctions have kept the Middle East fuel oil market tight.
Traders say fuel oil exports from Iran's Bandar Abbas and Bandar Mahshahr ports have been down by at least a third.
In Asia, the market fell and traders expected the weakness to remain, as demand for marine fuel has slowed and high volumes of Western arbitrage cargoes are expected to arrive in Asia next month.
Bunker premiums in Fujairah have been steady after a sharp fall due to global crude oil prices. Traders say underlying demand is healthy but the uncertainty in crude prices prompted buyers to put off purchases.
Prices for 380 centistoke (cst) fuel oil in Fujairah are around $597 a ton, while prices for 180 cst are at $618 a ton, up from end-June levels.