Fuel Oil Losses in Europe Decline as Russia Ships to Asia: Energy Markets
“Fuel oil is leaving Europe for Asia and that has tightened spot availability and narrowed fuel oil’s discount to Brent”. Photographer: Jimmy Jeong/Bloomberg
European refining losses on sales of fuel oil fell to a one-month low as Russian supplies headed to power stations and shippers in the Middle East and Asia.
Refiners are losing about $9.46 a barrel from processing North Sea Brent crude into fuel oil compared with $9.84 on June 14 and as much as $14.76 on April 6, according to front-month swaps cleared on Nymex Clearport. The discount averaged $8.23 a barrel in the past year. Oil companies are typically willing to lose money as long as they profit from higher-value products such as gasoline and diesel.
“Fuel oil is leaving Europe for Asia and that has tightened spot availability and narrowed fuel oil’s discount to Brent,” said Harry Tchilinguirian, the London-based head of commodity-markets strategy at BNP Paribas SA.
The combination of reduced export tariffs and falling domestic requirements during the summer months is stoking Russian exports of the residue from distilling crude, just as demand from Asia and the Middle East increases. Middle East power stations will boost consumption an average 2.5 percent annually between now and 2015, the International Energy Agency said in a report on June 23.
Russian production climbed 6.7 percent in the first five months of the year, reaching the highest level in almost three years in March, according to Energy Ministry data. Shipments from Russia may rise to as much as 56 million metric tons this year, from 54 million in 2009, according to Moscow-based Petromarket Research Group.
Import Surge
Kuwait’s power consumption increased to an all-time high last month, the state news agency KUNA reported June 16. Imports of high-sulfur fuel oil into the Fotco Oil Terminal in southern Pakistan rose by more than 50 percent in the 12 months to May 31, Bloomberg data show.
“We expect a surge in fuel-oil imports from countries such as Pakistan, India and Iraq,” said Fawaz Valiaani, chief executive officer of Dubai-based Valliani Capital Ltd., which trades in energy and commodities in the Middle East and Africa. “Demand for fuel oil in power generation is on the increase.”
Fuel oil demand rose in Thailand by 22.2 percent in March, as natural gas imports from neighbouring Myanmar fell, the IEA said in its monthly report today. Its demand rose 7.8 percent in April, the report said.
Russia produces a greater proportion than some of its peers because its lower-grade facilities aren’t able to process the commodity more than once, forcing it to seek foreign markets when domestic demand ebbs. Fuel oil, or bunker, accounts for about 27 percent of the nation’s refining output, compared with less than 10 percent in Germany.
Tax Advantages
“Fuel-oil capacities in Russia are excessive compared to domestic demand,” said Constantine Cherepanov, an oil analyst at UBS AG in Moscow.
Prime Minister Vladimir Putin cut the duty on heavy oil- product exports to $96.90 a ton on July 1 while the tariff on light oil products was reduced to $179.90. Russia changes its export duty on fuels every month.
Bunker consumption is also rising in Singapore, the world’s largest refueling port for tankers and container vessels. Sales jumped 7.5 percent to a record 3.47 million tons in May from a year earlier, the country’s Maritime & Port Authority said.
“High demand from the power-generation sector in the Middle East, Pakistan and other countries as well as solid bunker fuel sales in Asia should counterbalance” rising fuel oil exports from Russia, David Wech, head of research at Vienna- based JBC Energy GmbH, said by e-mail.
To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net
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