Turkey sucks in Black Sea gas oil, as its price spikes

LONDON – Turkey has boosted imports of Russian gas oil this month, slashing flows of the product beyond the Turkish Bosporus Strait to the rest of the Mediterranean and driving up price values to four-year highs. Traders said the increased shipments partly reflected the increased capacity of Turkish refiner Tupras to reduce sulfur content in the product, enabling it to make higher-value diesel fuel for domestic consumption and export. «They’re taking far more than last year,» one trader said. «Desulfurization (capacity) has increased.» «Demand has been very good there,» another said. The country was the destination for almost a quarter million tons of Russian gas oil loaded out of the key Black Sea terminal of Novorossiysk so far this month, or 85 percent of total shipments from the port, shipping agent data showed. That compared with less than half of Novorossiysk’s total gas oil exports of over 500,000 tons in March, and just over a third of total exports from the port in February. While shipments from Novorossiysk head for Turkey, Russian gas oil exports from the other major Black Sea terminal of Tuapse have slid this year as the port focuses on boosting fuel oil shipments. This has cut gas oil flows to the rest of the Mediterranean, triggering a surge in Med gas oil price values to their highest levels since the United States invaded Iraq in 2003. Mediterranean-delivered gas oil cargo price premiums were bid up to $36 a ton over front month ICE gas oil this week, touching the highest levels since March 28, 2003. Price premiums have averaged around $23 a ton so far this year, compared with $17 a ton in 2006. Desulfurization units Gas oil imports to Turkey have jumped as key refiner Tupras focuses on boosting output of high-value products such as diesel and jet fuel at the expense of less profitable products, such as fuel oil to feed both domestic demand and to boost exports. Domestic consumption has been rising on the back of economic growth, averaging more than 7 percent in the last four years, and fast-rising vehicle usage. Personal vehicle sales in Turkey were forecast to rise to 695,000 units by the end of this decade, up more than sevenfold from 96,300 units in 2002, according to J.D. Power Automotive Forecasting. Tupras in February said diesel output could rise to 12 million to 13 million tons within five years, from 9.5 million tons a year now. To help achieve that target, and to increase exports by producing motor fuel meeting increasingly tight EU rules on sulfur content in diesel, Tupras has been building desulfurization units at its 252,000-barrels-per-day Izmit refinery and 113,000-bpd Kirikkale plant. The unit at the Izmit refinery, which had been scheduled for completion in November 2006, was 99 percent complete by the end of last year. The one at Kirikkale is due to be finished in July next year. Its other major refinery, the 226,000 bpd Izmir plant, started up a similar such unit in September 2005. The units reduce the sulfur content in gas oil to enable the production of ultra-low-sulfur diesel fuel. The increase in gas oil shipments to Turkey has coincided with a mostly closed arbitrage from Asia in recent months that has limited flows from that part of the world. A heavy round of Asian refinery maintenance during the second quarter should keep that arbitrage shut for now. While gas oil demand from eastern Mediterranean countries such as Greece and Syria has been strong, buying interest from refiners in countries such as Italy has waned as the surge in prices drove values close to levels for higher-quality diesel fuel, traders said. «It makes more sense for them to buy ULSD directly,» one said. «With 0.2 (percent sulfur) gas oil high, desulfurization makes no sense.»

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