SINGAPORE, JANUARY 10: India has bought a bigger-than-expected volume of spot diesel for end January/early February and is demanding more, exacerbating Asia's tight diesel market, traders said on Monday.State-owned Indian Oil Corp (IOC) bought via tender on Friday eight cargoes, or about 3,15,000 tonnes (2.36 million barrels) of 0.25-per cent sulphur diesel, for delivery in the last week of January and the first two weeks of February. The award was double expectations.``This will definitely tighten the market, the award was very big and it's coming at a time when gas oil supplies are very tight,'' said a trader in Singapore.``The Middle East is very tight, so is Singapore, and people are wondering how the Indian awards will be covered,'' he said.India became self-sufficient in diesel supply in the fourth quarter of 1999 but a series of refinery problems has prompted it back into the spot market to buy through tenders.Following the bumper award, IOC issued yet another tender to buy more diesel for delivery during the end of January and the month of February. The new tender closes later this week.The news of the large Indian purchase is set to push gas oil prices in Asia even higher when the Singapore market reopens on Tuesday.The market was effectively closed on Monday for an unofficial industry holiday.Gas oil in benchmark Singapore on Friday had an 85-cents per barrel backwardation between the front two months.A Singapore trade on Friday saw the differential for prompt physical gas oil climb to 45 cents, triple the 15-cent premium a day earlier.That was built on perception that India would buy around four cargoes.Prices have also been pushed up by output cuts by refiners,principally in Singapore. Last week Shell Singapore said it was reducing production in January to just 47 per cent of its 4,35,000 barrels-per-day (bpd) capacity, the lowest for the refinery in several years.In the Middle East, January cargoes are sold out and many refiners in the region have stopped making the 0.25-per cent sulphur grade required by India. In addition demand elsewhere, noticeably from Indonesia and Vietnam has strengthened, aggravating the tight market.``January Middle East cargoes are all committed to the West because of the attractive East-to-West arbitrage, so there is very little spot availability to cope with the unexpected demand from India,'' said a refiner in South Korea.The steep backwardation has discouraged traders from storing large volumes of oil, curbing the market's ability to cope with the unexpected demand spike. Middle distillate stocks in Singapore are at their lowest in 28 months. Traders said it was not clear why India required such a big import volume for January and February, but that domestic refinery problems were largely to blame.The refinery woes had forced India to re-emerge to buy spot barrels for January, taking four cargoes for delivery January 16-23 in a tender awarded late December. India stopped importing in October after the start up of the 5,40,000-bpd Reliance refinery provided the diesel to meet India's shortfall of supply.India bought one million tonnes of diesel per month on an average during 1999.
