---

Japan is fast becoming the leading importer of Russian fuel oil in Asia as refineries look for ways to cut costs and use the imported fuel oil as a cheap feedstock to make refined products, Reuters reports.

At least two Japanese refineries are said to have started to use straight-run M100 fuel oil from Russia for several months, including ExxonMobil's affiliate TonenGeneral Sekiyu and Kyokuto Petrolem Industries.

As crude oil continues to reach record levels, closing at $113.79 on the New York Mercantile Exchange (NYMEX) yesterday, Japanese refineries have begun lowering their processing rates to reduce their losses and sourcing cheaper feedstock alternatives like M100, which is currently over $25 a barrel cheaper than crude oil.

Approximately 500,000 metric tonnes of M100 fuel oil is said to be exported by refineries in Russia's Far East every month. Sources in Asia say that European oil trading company Vitol has secured an agreement with ExxonMobil Japan to supply 120,000-140,000 metric tonnes of M100 per month - or three to four cargoes - for the next six months.

A spokesperson at ExxonMobil Japan confirmed to Reuters that the company had been purchasing Russian grade heavy fuel oil but declined to give any further details.

As demand for Russian fuel oil from Asia increases, the price is said to have risen from $45-$50 a tonne in December 2007 to current levels of $70-75 a tonne.

Fuel oil imports into Japan have soared from 40,000 a month in the first quarter of 2007 to a record high of 250,000 in December last year, according to government data.

Chinese traders, meanwhile, have had to look for alternative product sources, primarily fuel oil from Iran, as they discover that their Japanese counterparts are ready to outbid them for the Russian fuel oil cargoes.

Total imports of fuel oil into China rose to 1.72 million tonnes during the month of February, according to the General Administration of Customs. This figure represented a 8.7 percent increase in fuel oil imports compared to the previous month but was still below the average monthly rate for 2007 as high import costs have stifled demand from local power plants and refineries.