A diesel shortage in Brazil as refining capacity fails to keep pace with growing industrial demand is expected to boost the country's imports of the fuel from Asia and the Middle East for the next two years.
This comes at a time when domestic demand in China and India has risen, which is expected to tighten the supply of diesel in Asia next year.
To meet the growing domestic demand, Petrobras has been actively purchasing middle distillates in the spot market and tying up term contracts with refiners in Asia and the Middle East for next year, including the deal with KPC.
Petrobras has signed a one-year contract with KPC to buy 25,000 tons of 500 parts per million (ppm) sulfur diesel every month starting from January, 2012, two sources familiar with the matter said on Friday.
The diesel cargo will be added to an existing contract between the two companies for 40,000 tons of jet a month to be supplied to Petrobras over mid-2011 to end of 2012, they said.
The term premium for jet and gasoil were fixed at about $1.70 a barrel and $2.80-2.90 a barrel to Middle East quotes respectively, they said.
KPC used to provide the Brazilian company with crude oil and products in the 1990s.
The jet fuel contract between the two companies this year was seen as a breakthrough for KPC into the South American markets.
Brazil's diesel demand is expected to outpace supply by 170,000-175,000 barrels per day (bpd) in 2011 and 2012, widening from 95,000 bpd last year on average, according to a forecast from US-based consultancy Energy Security Analysis Inc.
The shortfall has led to Brazil looking outside the United States, its main source of clean fuel products, and toward Asia to feed its growing appetite for diesel.
For example, South Korea's gasoil exports to Brazil have risen to 20,000 barrels per day (bpd) this year from nothing five years ago, according to a report by Deutsche Bank.
Petrobras had earlier this month signed a term contract with South Korea's GS Caltex to buy unspecified volumes of ultra-low sulfur diesel for next year, sources said.
Brazil also buys about 600,000-1 million bpd of diesel from India each month.
The country will continue to import gasoline and diesel before the first of four new refineries start up in 2013, Petrobras CEO Jose Sergio Gabrielli said last month.
Four new refineries will add 1.4 million bpd of oil products output, the CEO said, lifting refinery capacity to around 3.2 million bpd by 2020.
