Fujairah Becomes Serious Competitor For Bunkers; Asian Fuel Demand Is Firm.

The bunkering business in the UAE emirate of Fujairah is competing seriously with that of Singapore. The price of bunker fuel in Fujairah is almost $6/ton cheaper than in Singapore, having fallen by $9/ton since Oct. 1, when the number of traders increased to include Shell and other companies.

In volume terms, however, Singapore remains the main bunkering market east of Suez. Fujairah is handling about 750,000 tons of bunkers per month, whereas the volume in Singapore is 1.45 million tons/month.

The UAE emirate hopes that, eventually, the volume would rise above that of Singapore as its bunker prices have become more competitive. In 1997, traders in Fujairah sold about 13 million tons compared to 17 million tons in Singapore, according to 'Petroleum Argus'.

On Oct. 1, the Fujairah government issued new bunker licences to trading companies in order to expand this business. It has since invited several other firms to join the market. Those who began trading in the emirate included Shell, Elf Aquitaine, and Hin Leong of Singapore.

Fujairah wants to benefit from the strength of fuel oil demand in Asia, where supplies have been tight in recent months and have caused the price of Dubai crude oil to rise above that of Dated Brent occasionally (see OMT).

Hin Leong's move to Fujairah is primarily targeting the markets of India and Pakistan. It has its own shipping vessels, apart from its terminals in Singapore. The firm moved to Fujairah after having seen its fuel oil sales to China and Indonesia fall as a result of Asia's economic crisis.

Other players on the Fujairah market are Texaco, having a leading bunker business in the Gulf; Abu Dhabi National Oil Co. (ADNOC), which is expanding its service; Glencore of Switzerland; the refining and trading company Fal of Sharjah, which has been supplying more than 300,000 tons/ month of fuel oil; and Greek traders Avin and Seamark.

Three new trading companies are being established by former employees of Greek refiner and bunker supplier Metro Trading, which went bankrupt in February 1998. Metro's 98,000 b/d refinery in Fujairah has remained closed since February.

Before Oct. 1, bunkers in Fujairah used to be sold at a premium of $3/ton over Singapore prices. The advent of new suppliers led to intensified competition and a $9/ton fall in bunker prices so far. Fal, now the main supplier to the Fujairah market, is the hardest hit among the players.

Fal, with an expanding refinery in Sharjah, used to be the main beneficiary of Metro's collapse. From early October it was compelled to lower its bunker price in order to preserve its share of the Fujairah market, which is located just outside the Gulf.

Govt. Claims Ownership Of Metro Refinery: The government of Fujairah has claimed ownership of Metro Trading's closed refinery, with the Metro case to be decided by the court in early 1999. Metro is also claiming ownership and believes it can contest the bankruptcy case which was referred to the court after its collapse in February.

Glencore is claiming ownership of the refinery as well. The Switzerland-based company has sued Metro Trading for arrears and damages as the latter had failed to meet supply commitments made to Glencore.

The Asian market for fuel oil, meanwhile, is strong and in backwardation. In forward trades, or swaps, November deliveries are priced at a premium of more than $6/ton to January fuel oil. The discount on fuel oil to Dubai crude has narrowed from $3/barrel in September to about 30 cents/barrel.

The switch from a steep contango occurred in late September, when the price of low viscosity fuel peaked at $90/ton. The price has since fallen to about $80/ton. But Asian demand has remained strong, at about 4 million b/d. One of the main factors is rising demand in China, which does not restrict fuel oil imports. According to 'Petroleum Argus', China's fuel oil demand this winter would exceed 800,000 b/d.

Chinese imports of fuel oil this year have risen by a third to 250,000 b/d.

China has imported lower sulphur fuels from South Korea. South Korean refiners have increased the use of light/sweet crude oils, mainly West African grades, and flooded the market with low sulphur fuels.

The increased availability of low sulphur fuels has been the main cause for the fall in prices since late September. Light/sweet crudes have been cheaper than Dubai and other sour grades in recent weeks.

Saudi Aramco has cut exports of Arabian Medium and Heavy crudes in recent months, causing a further squeeze in the supply of high-sulphur fuel oil.

Asian production of high-sulphur fuels has been reduced also because of the switch to light/sweet crudes.

Volumes of North Sea crudes reaching Asia have increased as well. Statoil of Norway has increased the sale of Oseberg crude to Taiwan, South Korea and Japan. The Norwegian company has storage space on the Japanese island of Okinawa.