Saudi concludes deals for term gas oil supply.
Saudi Aramco has concluded supply deals to purchase up to 7.14 million barrels of gas oil for delivery in 2010 from private trading firms and international oil companies, industry sources said. The world"s top oil exporter, which typically steers away from longer-term supply contracts as it strives for fuel self-sufficiency, has already agreed to buy nearly 5 million barrels of gas oil with four firms.
Swiss based trading firm Vitol, oil major British Petroleum, Kuwait"s Independent Petroleum Group (IPG) and Japan"s Itochu Petroleum will each supply about 1.19 million barrels to Aramco, sources said. Aramco also has the option of purchasing an additional 595,200 barrels from each respective company, under the individual deals.
These deals will run from March through December, traders said. The price on the deals was concluded at a premium of $2 to Middle East benchmark quotes on a 0.5 percent sulphur basis, cost and freight (CFR). Last year Aramco concluded its term deals at a premium of around $2.70.
The Gulf Arab oil producer bought up to 10 million barrels via long term deals in 2009, but has likely cut back on the volume it secures via such supply contracts this year because there are more attractive deals available on the spot market. ?It isn"t just Aramco, term buyers have limited their volumes this year because they know that the spot market can be very attractive due to oversupply pressuring prices,? a Middle East trader said. The state oil firm was expected to purchase a combination of different sulphur content cargoes from the firms.
Oil demand in Saudi Arabia is expected to rise this year along with expectations that the kingdom"s economy will grow about 3.8 percent in 2010, up from 0.2 percent in 2009, a poll showed.
?Their demand is going to be quite healthy this year...they are still spending and pushing ahead with all their mega projects, so, of course, oil demand will be robust,? a trader said. Saudi demand for power generation fuels and transport has risen rapidly over the past several years as record crude exports sparked an economic boom.
Supply cuts to the kingdom"s overall production in line with Opec quotas has also tightened supply of Saudi gas, most of which is produced with oil, leaving less to supply power plants and industry.
Meanwhile. Kuwait Petroleum Corp (KPC) has set its 2010 term 500ppm and 0.2 percent sulphur diesel export prices significantly below last year"s premiums, due to the global supply glut, traders said. KPC priced its 500ppm gas oil exports at $1.70 per barrel above Middle East spot quotes, based on the 0.5 percent sulphur grade, on a cost-and-freight (C&F) basis, compared with a premium of $6.00 las year.
It set its 0.2 percent sulphur grade export price at $1.40-$1.45 per barrel above Middle East spot quotes, also based on the 0.5 percent sulphur grade, C&F, much lower than the premium of $4.00-$5.00 last year. Gas oil cracks have stayed above $8.00 a barrel for the last four sessions, buoyed by refinery maintenance in Europe and higher Indonesian demand, but overwhelming volumes stored on floating vessels off Europe continue to weigh on the market.
Indonesia is seeking an additional 400,000 barrels for February delivery, after suspending operations at one of two hydrocracker units in Balikpapan. Supplies in Europe have tightened slightly, due to refinery maintenance in Britain and Germany that starts from the end of the first quarter, with firms picking up spot cargoes to plug potential output gaps.
But overall, the number of vessels used as floating storages globally remained steady in January at 116, with total distillate volumes at 89.4 million barrels, ship broker ICAP said. Other trade and shipping sources pegged January floating storage volumes at between 70 million and 90 million barrels.
US bank Goldman Sachs estimated that 15 million barrels of oil products, mostly gas oil, were withdrawn from 22 tankers employed in floating storage during January, leaving an estimated total of 80 million barrels of products in floating storage as of end-January.
Asian supplies remain abundant. Singapore onshore distillate stocks rose to a two-week high of 14.634 million barrels.