Fujairah needs more traders to become fuel oil hub

Fujairah will have to attract more oil trading companies to achieve Singapore's status as a fuel oil trading hub, industry observers said. The UAE oil trading community has long expected Fujairah to replace Singapore as a trading hub for fuel oil.

"More than 50 companies deal in fuel oil in Singapore while in Fujairah, the number is much lower," said Paul Young, Executive Oil Pricing Editor – Asia, Platts, a global energy information provider headquartered in New York.

While Singapore trades about three million tonnes of fuel oil per month, the figure is lower at Fujairah. "It dropped to about one million tonnes a month in 2009 as compared to two million tonnes a month in 2008," said Calvin Lee, Managing Editor – Asia Pacific and Arab Gulf, Crude and Light Distillates, Platts.

"The slackness in construction industry in the GCC contributed to the drop in demand for fuel oil," Young said. Young and Lee spoke to the Emirates Business on the sidelines of the Platts Middle East Oil Forum 2010.

Fuel oil in Fujairah trades at a differential to that of Singapore, with the value of the differential rising in winter. This year, the differential was $10 to $12 per tonne – almost similar to trends during the same months last year. "The higher price of fuel oil in Fujairah reflects high demand and low supply," Lee said.

Singapore recently launched a fuel oil futures contract (SGX Fuel Oil 380 Centistoke Futures Contract) on February 22 this year but the Fujairah Fuel Oil Futures Contract launched earlier at the Dubai Gold and Commodities Exchange (DGCX) no longer figures in the otherwise impressive list of commodity volumes traded at the Dubai-based exchange.

Singapore Exchange's new fuel oil futures contract kicked off to a good start on its first day of trading with 29 trades reported within the first two hours of operation. A total of 13,717 tonnes of 380-centistoke (cst) fuel oil was traded for April at the Singapore-based exchange from $472 to $474 a tonne in the first two hours of trading, according to news reports. Interestingly, in 1989, the Singapore Mercantile Exchange launched a fuel oil futures contract but failed when complications over the delivery mechanism led big players to quit the market.

Fujairah supplies fuel oil to the entire Middle East but shortage of storage capacity leads to high bunkering charges. Petri Pentti, Group Chief Financial Officer, Emirates National Oil Company (Enoc), recently said Vopak Horizon (VH), the Fujairah based company in which Enoc holds a 30 per cent stake, will be floating the tender for the sixth phase of its 600,000 cubic metre capacity storage project soon. Other companies are also reportedly building storage tanks in Fujairah.

Dubai-based traders have high expectations of Fujairah evolving into a trading hub. "In two years, we see Fujairah evolving into a much bigger trading hub. The Habshan oil pipeline from Abu Dhabi to Fujairah will be a shot in the arm for the emirate," said Midhun Vijay of Saurabh Energy DMCC. The pipeline is under construction.

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