Asia Ultra-Low-Sulfur Diesel Premiums Rising After Japan Quake

Asia's ultra-low-sulfur diesel premiums are rising and could easily top $4 a barrel to benchmark Singapore quotes due to tighter regional supplies following the magnitude-9.0 earthquake and the tsunami in Japan.

"Everybody offering 10-parts-per-million cargoes is waiting to see how far the premiums will go," a western trader said Tuesday. ULSD is also known as 10-parts-per-million-sulfur gasoil.

Almost 1.4 million barrels a day, comprising more than a quarter of Japan's refining capacity, has been shut due to physical damage, loss of power or as a safety precaution.

The refinery outages have prompted both Japan's Cosmo Oil Co. (5007.TO) and Idemitsu Kosan Co. (5019.TO) to seek ULSD in the Asian spot market to cover the lost production and meet domestic demand, a Singapore-based trader said.

JX Holdings Inc. (5020.TO), which shut three refineries in northeast Japan, also is considering importing oil products such as ULSD from South Korea, a company official. JX is likely to cancel some diesel cargoes it planned to export in March, the Singapore trader said.

Japan's rising need for imports and reduced exports won't be the only cause for tighter regional supplies. Other traders--most notably European oil major BP PLC (BP.LN)--will also be forced to seek cargoes elsewhere to meet demand from Australia and Chile, which import as much as a combined six million barrels from Asia each month for transportation use.

BP is a major term buyer of ULSD from Japanese refineries and ships a large portion to Australia, traders said. BP last offered bids of $3.70 a barrel to benchmark quotes in Singapore's spot market, up from $2 a barrel just before the earthquake.

"It seems like they are desperate in the market and looking to supply their shorts," the western trader said.

"We were looking to buy barrels from Asia or the Middle East, but since premiums are rising, we have decided to postpone our purchases," he said.

-By Wayne Ma, Dow Jones Newswires; [phone]; [e-mail]