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Shell Singapore shutdown adds to global supply woes

SINGAPORE (Reuters) - Royal Dutch Shell will shut its second-largest crude distillation unit (CDU) and two secondary units at its Singapore plant next month for routine maintenance, piling more pressure on tight global distillate supplies.

The CDU No. 4, with a capacity of 115,000-130,000 barrels per day (bpd) on Bukom island, as well as a gasoline-making platforming unit, is set to shut in early June and run for about three weeks, refining sources said on Friday. The platformer can produce an estimated 6,000 bpd of gasoline.

The turnaround on the hydrotreater -- one of the smallest among seven others that produce mainly ultra-low sulphur diesel and jet fuel -- will start around June 24 and last for about a month, the sources added.

A Shell spokesman declined comment when contacted. The refiner does not normally comment on operational matters.

While analysts and traders said the turnaround would have limited impact on the major’s export plan as they would have stocked up in advance, it comes at a time when global oil prices are driven by the strength of distillates on growing demand for transport fuel in Europe and for power in emerging economies.

“Any time you have a crude unit or other process units going down, even if it’s planned... directionally it will support the market, especially since this is not a very good time for this to be happening,” said Victor Shum of Purvin and Gertz.

A recent strike at the UK’s Grangemouth refinery and output problems at the Porvoo refinery diesel unit in Finland have also curbed supplies at a time of shortages in China, South Africa, Latin America and parts of the Middle East.

Outages were also seen in Indonesia, where Pertamina has shut an 83,000-bpd gasoline-making unit at its Balongan refinery due to an outage, while Valero Energy Corp is undergoing regular shutdowns at its crude and vacuum units in Corpus Christi, Texas.

On Friday, U.S. crude prices extended their rally to records of $124.92 per barrel, propelled by strong diesel demand and active buying by investment funds. London gas oil futures premium to Brent crude also jumped to a record of $31.28 a barrel on the rally in gas oil.

Asian gas oil cracks commanded $33.15 a barrel on Friday, near the record $34.81 hit three weeks ago, as news of the maintenance added support to a market already bullish on Western arbitrage hopes and strong demand from China.

BULLISH

About 90 percent of refined oil products from Shell’s 500,000-bpd mega-facility in Singapore, which has two other CDUs, are sold into regional markets.

Traders estimate the three-week CDU shutdown would take between three and four medium-ranged (MR) tankers cargoes, or 90,000-120,000 tonnes, of diesel off the market in June.

And with competing demand from Europe, which could see a rare East-West arbitrage opening up as early as next week, traders said Shell refinery’s partial shutdown could help lift prices further.

“You have to know that the market will act on anything these days. Diesel is driving the barrel, it is the reason why crude oil prices are rising like there is no tomorrow,” said a Singapore-based trader with an oil major.

While Shell’s maintenance of the platforming unit should have little impact on Asian gasoline, the market is expected to tighten in coming weeks due to the Balongan residual fluid catalytic cracker (RFCC) outage.

Eyes are also on strong Australian demand for gasoline in light of recent shutdowns and outages.

The gasoline reforming margin, or the premium that gasoline fetches to naphtha, rose for the fifth straight-session, up $2.31 to $19.68 a barrel.

The refiner’s Singapore facility, which is Shell’s largest refining centre by crude-processing capacity, shut its Long Residue Catalytic Cracker (LRCC) in end-September for more than three months following an outage.

At the time, Shell’s fuel oil supplies were most affected, as most of the product was drawn off the LRCC’s residues as well as from another unit, the 66,000-bpd thermal gas unit (TGU), which had been scheduled for a three-week turnaround in November. The TGU was restarted in early December.

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