Under the contract for January to December 2010 supplies, which may also enable Petrolimex to skip quarterly fuel oil tenders this year, it will get one 80,000-to-90,000-tonne cargo each month of the Western M100 grade.

The cargo will be blended in Singapore to Petrolimex’s utility specifications and marine fuels grade before being shipped to Vietnam.

The first delivery is expected by end-January and is expected to be blended on board the Russian firm’s floating storage facility, the Titan Chios, anchored off Malaysia’s southern Tanjong Pelepas port.

"The term supply should be sufficient to meet their utility needs and with some spare for them to sell to Vietnamese ships calling at Singapore or to refuel their own vessels that come to Singapore to pick up other oil products," a Singapore-based Western trader said.

"With the deal in place, it is unlikely that they will need to buy any more fuel oil via their quarterly tenders from the marketplace. If they need more, they can always issue one-off spot tenders."

The first parcel was to have been delivered two months ago, but has been deferred due to high inventories in Vietnam because of the year-end rainy season as most of the country’s electricity is generated by hydropower.

Traders said while the deal is for one aframax parcel each month, it is more likely that Petrolimex will take delivery of two parcels in three months.

The buffer of the extra parcel will also give Petrolimex some leeway in case of a supply disruption from its newly operational Dong Quat refinery, which was commissioned last year but has faced problems since.

The national import-export company typically buys low 0.97 density and high 0.99 density cargoes for power generation and bunkers grade 380-cst.

The Western M100 cargoes are from LUKOIL’s refining system, either from the Baltics or the Black Sea regions, with maximum density of 0.991.

Prior to signing the term-supply deal, Petrolimex typically buys about 300,000 tonnes via its quarterly tenders from traders including oil major BP, European trader Vitol and Singapore’s Kuo Oil.

In its first-quarter tender issued on Thursday, Petrolimex is seeking 302,000 tonnes of gasoline and gas oil, down from a total of 633,000 tonnes in the fourth quarter, which includes fuel oil. [ID:nSGE6060FU]

Petrolimex had also negotiated with the Russian major over a similar term deal for diesel but it failed to materialise due to differences over loading ports.

It had sealed separate deals for over 2 million tonnes of gas oil with other suppliers, including Kuwait Petroleum Corp. (KPC) and South Korea’s SK Energy.