Saudi Arabia importing diesel and jet fuel to manage disruptions

Seoul/London

SAUDI ARABIA, the world's biggest crude exporter and a powerhouse of the oil refining industry, is scouring global fuel markets for cargoes in the wake of unprecedented attacks on its energy industry.

Aramco Trading Co, which buys and sells fuel on behalf of the state oil company, purchased diesel cargoes and also sought one-off supplies of aviation fuel this week, according to people involved in those markets. Fuel oil, which can be used instead of crude for power generation, has also been bought. Exports of naphtha - a building-block product for making gasoline and plastics - have also been disrupted.

While the kingdom does import fuel from time to time, traders say the scale of its current purchasing is well above normal.

On Saturday, vital oil-production facilities at Abqaiq were attacked, resulting in a temporary halt to a large swathe of the nation's output capacity. To keep crude flowing to customers, Saudi Arabia cut processing at its own refineries by one million barrels a day, and stepped up fuel imports.

"If you take off a good portion of Middle Eastern refinery capacity then there's a void in the market and it needs to be filled," Eugene Lindell, head of downstream analysis at JBC Energy GmbH, said by phone. "Luckily, we just happen to have ramping up of Asian capacity - particularly in China - and that will help fill the void." Aramco purchased cargoes of diesel early this week.

The company was also seeking to defer some supplies of naphtha to its customers, according to a buyer who received such a request from Aramco. Separately, it was also seeking spot supplies of jet fuel, according to traders who buy and sell the aviation oil. Aramco also bought at least two high-sulfur fuel oil cargoes, people with knowledge of the matter said.

Although there were no signs of Aramco Trading buying gasoline, there have been signs that more of the fuel could flow to the region. Since Friday, several tankers have been booked to ship the fuel from north-west Europe to the Middle East on what would be a relatively rare trade route.

They may not end up there since all have options to sail to Singapore. It's also hard to say whether those charters would be a consequence of the weekend attacks, especially as US imports from Europe have fallen of late, suggesting cargoes from the continent may be looking for a new home anyway.

Saudi Aramco didn't respond to an emailed request for comment.

The flurry of demand supported prices in Asia where the cost of naphtha for immediate supply surged over later-loading shipments. The spread, known as backwardation, a key indicator of physical supply and demand balances, strengthened to US$12.50, its highest in more than five years, on Tuesday. It was at US$6 backwardation as of 12.58pm in Singapore on Thursday.

The premium of prompt jet fuel supplies in the region's trading hub of Singapore also surged to its highest since April 2018, according to data compiled by Bloomberg. Meanwhile, Europe's jet fuel market has strengthened since Friday, with stronger premiums to both Brent crude and ICE gasoil seen in the forward market.

In Singapore, the world's largest marine fuelling hub, high-sulfur fuel oil forward markets showed the product rocketing as measured against Dubai crude in the days after the attack, with the same dynamic seen in Europe.

One of the attack's consequences is that Saudi Arabia is likely to burn more fuel oil in its power generation plants, according to analysts.

Saudi Arabia has become an increasingly important refining centre in recent years as the nation tries to maximise the value of its oil. BLOOMBERG