Saudi to meet Yemen fuel needs until June-sources

By Jessica Donati and Humeyra Pamuk

April 30, 2012

(Reuters) - Saudi Arabia will continue to help Yemen by supplying it with refined oil products in May and June, traders said on Monday, extending a lifeline to its troubled, impoverished neighbour.

A series of attacks on Yemen's oil infrastructure has forced its main refinery to shut, and the country has become reliant on Saudi donations to meet its fuel needs.

Yemen's location on the strategically important Bab al-Mandab strait, through which millions of barrels of oil are shipped between Asia, Europe and the Americas, makes instability there a risk to global trade.

Severe fuel shortages in early 2011 led to the deaths of dozens of people in street battles across the country, helping to prompt the first oil-related donation from Saudi Arabia in June 2011.

"Political stability is worth much more for Saudi Arabia, compared to fuel," said a Gulf-based trader.

Traders expected Saudi Arabia to make monthly purchases in May and June of around 200,000 tonnes of diesel to give to Yemen, worth well over $200 million based on prices given by Yemen's oil minister in late 2011.

State oil giant Saudi Aramco is also expected to make monthly purchases of around 100,000 tonnes each of gasoline and fuel oil for delivery into Yemen.

In June 2011, an initial injection of 3 million barrels of crude from Saudi Arabia allowed Yemen's main Aden refinery to resume operating.

Supplies ran out a few months later, however, forcing the plant to shut. Yemen now relies on imports to meet virtually all of its domestic fuel needs.

Swiss-based trading houses including Trafigura and Vitol have term deals to supply Yemen with refined oil products, but volumes meet only a fraction of demand for fuel for its cars, power stations and other needs.

Saudi Arabia agreed to throw Yemen a second lifeline of about 500,000 tonnes of refined oil products in January and has since continued to provide regular shipments of fuel.

The deals for May and June will be done on the spot market, traders said, with state oil giant Saudi Aramco buying products for delivery into Yemen, rather than Saudi ports.

Islamist militants linked to al Qaeda blew up a gas pipeline in eastern Yemen last week, the third attack on the country's oil and gas facilities in a month.