Saudi Aramco Importing India's Reliance Oil

February 10, 2009

 

(Arabian Business News) - Saudi Aramco has secured a deal to buy 7.4 million barrels of gas oil from India's Reliance Industries for 2009, as strong demand for power and motor fuels forces it to import, traders said on Monday.

The deal takes the total the kingdom has bought on contract for 2009 to over 10 million barrels. The world's top oil exporter typically avoids longer-term deals as it strives for fuel self-sufficiency. But cheap international prices and growing demand may have convinced Aramco to lock in supplies, trade sources said.

"Under normal circumstances, this would be very unusual, but at a time when prices are in a slump stocking-up makes good business sense," a Middle-East based trader said.

 

"And the prices they have done the term deals at look good for them in the long run, I'd reckon we would see them less in the spot market this year, unless their requirement continues to expand."

Details were unavailable on the price of the Reliance deal.

Last week Aramco agreed to buy 3 million barrels of gas oil for delivery March through December from Japanese trader Itochu.

Saudi demand for fuel for power generation and transport has risen rapidly over the past six years as record crude exports sparked an economic boom.

But a slump in oil prices since last July has seen the kingdom cut output to its lowest level in more than six years as OPEC races to match supply with falling demand.

Most Saudi gas output is produced with oil so supply has tightened with oil output, leaving less to supply power plants and industry.

That may force some power plants to switch to liquid fuels and boost oil demand in the kingdom, already expected to grow by around 90,000 barrels per day in 2009.

The shutdown of Aramco's 120,000 bpd Riyadh oil refinery for one month from February to March has contributed to short-term demand for gas oil.

Aramco would have the option to purchase either 0.5 percent or 0.25 percent sulphur cargoes from Reliance on a floating premium basis.

It was unclear if the cargoes would be coming from Reliance's giant new 580,000 barrels per day Jamnagar refinery.

"They have already started receiving cargoes in January from the old refinery, but they could possibly take product from Reliance's new refinery when it gets up and running," a trader said.

Reliance plans to start selling gasoline, gas oil and jet fuel from its new export refinery from April. When Jamnagar is fully operational, Reliance will have total refining capacity of about 1.24 million bpd.

Aramco did the previous deal with Itochu at a premium of around three dollar a barrel to benchmark Middle East prices.

On Monday differentials for 0.5 percent gas oil trading on the Asian market was valued at a discount of about $1.50-$2.00 a barrel, reflecting an oversupplied market, while the 0.25 percent grade was pegged at a discount of around 25 cents.

 

- Copyright 2009, Arabian Business News.