Nigeria’s Dangote refinery has exported around 240kbd of refined products between April and July this year, with fuel oil contributing 70kbd (or 30%) of total exports. The refinery’s fuel oil exports predominantly targeted the Atlantic basin during the first three months of its exports before pivoting its supplies towards the Pacific basin. Refineries in the Atlantic basin likely use the low-sulphur straight-run (LSSR) supplies as feedstock for their fluid catalytic cracking (FCC) units to increase gasoline yields before the summer driving season.
Dangote refinery directs fuel oil cargoes towards East of Suez
In recent months, Dangote refinery has shifted its focus to the East of Suez markets, with more volumes headed for Southeast Asia and the Middle East Gulf, as gasoline cracks in the West of Suez have fallen. Concurrently, bunker demand has remained robust in the East of Suez as vessels continue to transit through the Cape of Good Hope. Trafigura estimates that the longer voyages will increase fuel oil consumption by 500kbd this year, with 200kbd consumed by oil tankers. (Bloomberg)
Currently, four vessels carrying 3.4mb of LSSR from Dangote refinery are en route to Singapore. They include VLCC EVGENIA I, the first VLCC to visit the refinery, co-loading fuel oil from the refinery with heavy sweet Kraken crude for VLSFO blending. Another three Suezmax vessels – MARATHI, ADVANTAGE START, and SPYROS – are also signalling towards Singapore. Increased LSSR exports to Singapore have curtailed European fuel oil exports to Asia, with no low sulphur fuel oil cargoes seen loading for Asia in the first half of August.
Fuel oil arrivals in the Middle East soared to 2-year highs in the first half of August
Middle East fuel oil arrivals surpassed 900kbd in the first 17 days of August, driven by more robust summer demand in Saudi Arabia and the United Arab Emirates. Most of these supplies came from intra-regional flows, contributing to over 500kbd for the third consecutive month.
Saudi Arabia’s combined crude and dirty petroleum products arrivals to key power generation sites reached 800kbd for the first time in June and is set to break that record in August. These power generation sites can switch between burning crude and fuel oil, optimising supplies depending on feedstock availability. Saudi Arabia turned to Kuwait for fuel oil imports for the first time in over two years, reflecting the tightness in high sulphur fuel oil supplies.
UAE recently increased its low-sulphur fuel oil imports due to a supply shortage. The Fort refinery, a major producer of very low sulphur fuel oil (VLSFO), is unable to import Dar Blend crude from South Sudan because of a force majeure. Thus, the refinery halted operations in May and aims to resume production in August (Argus Media). Fujairah started importing more medium sweet Nile blend crude in August, signifying the refinery could potentially switch its feedstock. Middle East’s reliance on Russian fuel oil supplies has also grown steadily since the start of the year, reaching over 100kbd for the past four months.
The tightness in the high sulphur fuel oil market will likely unwind once the summer season ends, as power generation usage in the Middle East wanes, leaving more high sulphur supplies for the bunker market. China’s independent refineries could be ramping up their high sulphur fuel oil purchases to supplement their feedstock amidst a lack of crude import quotas. Meanwhile, the low sulphur fuel oil market could see tighter supplies from Dangote refinery as it starts up its secondary units in the second half of this year.
