DUBAI: Middle East fuel oil prices were poised for a boost next week after holding steady over the past seven days, as East of Suez supplies were expected to tighten due to refinery maintenance and a seasonal increase in demand.

Benchmark fuel oil differentials for 180-centistoke (cst) were pegged at $5 a tonne this week, and maintained that level despite unexpected spot sales from Kuwait and Saudi Arabia. The spread from May to June fuel oil in Asia was pegged at minus 12.5 cents a tonne, closer to backwardation than it has been in months.

Fuel oil’s value versus Dubai crude strengthened as much as 5 percent, with May valued at a discount of $4.60 a barrel, the highest level since February 24. “The market is slowly waking up to the tight supply flows coming out of Europe ... and grappling with demand starting to firm up here in the region,” a trader said.

Fuel oil supplies from Europe and the Mediterranean region have tightened due to heavy refinery turnarounds. Western arbitrage flow into Asia for May is expected to drop around 21 percent from the previous month to 2.7-2.8 million tonnes, traders said.

“This is going to have a big impact on the market, especially with demand here in the Middle East picking up as we enter into peak summer demand,” a Middle East based trader said. Middle East gas oil differentials rose 20 cents to $2 a barrel versus levels seen last week on tighter supply from Europe, Asia and the Middle East due to refinery maintenance. “Asian refineries are set to go for turnaround in May, top this with the turnarounds in Europe.... and the market should start to draw down on stocks in storage and return to balance,” an Asian trader said.

Traders are also eyeing continued spot purchases by Saudi Arabia which was looking to pick up additional spot cargoes as it grapples with a shortage of gas supplies needed for power generation. The world’s top oil exporter has already locked in 10 million barrels of gas oil on contract for 2009. It sealed a deal to buy 7.4 million barrels of gas oil from India’s Reliance Industries, and bought three million barrels of gas oil for delivery from March through December from Japanese trader Itochu. Saudi Arabia typically avoids longer-term supply deals as it strives for fuel self-sufficiency.

Middle East gasoline differentials eased this week due to expected increases in supply from Reliance’s new Jamnagar refinery. The market was awaiting the import programme of Saudi Arabia and Iran, traders said. Benchmark gasoline premiums were valued at around $2 a barrel, down 50 cents from the previous week.