Iran, a regular exporter of fuel oil to Asia, will halt shipments of the heavy fuel from August as it builds domestic stocks ahead of winter, and due to a heavy fourth-quarter maintenance season, industry sources said on Thursday.

Iran has been shipping out about 1.2 million tonnes of the residual fuel monthly since April. Rising domestic consumption and a lack of gas alternatives had also forced it to reduce exports over the past two winters.

"This is true, we will be concentrating on building up stocks for use at our power stations," a source familiar with the fuel oil export programme said.

Iran's decision came on the heels of Saudi Arabia's move to not resume spot fuel oil exports after its peak summer demand season, due to persistently strong requirements from domestic power plants and new secondary refining units.

The moves by the two biggest fuel oil exporters in the Middle East will worsen the current tight supply in Asia, helping to boost crack levels to around $13-$14 a barrel below Dubai crude, a seven-month high.

"I am not surprised if we see the fuel oil cracks flip back into a premium at some point over the next two, maybe three months," a Singapore-based senior fuel oil trader said.

Robust economic growth in Middle East oil-producing nations has spurred industrial demand for utility fuels, as power usage across the Gulf Cooperation Council (GCC) grows at an annual rate of around 8 percent.

Gas projects have also failed to keep pace with demand for power generation. Apart from Qatar, all Gulf states are short of gas.

"Iran relies on gas supplies for its power generation especially during peak demand periods, and they are stockpiling now so that that they won't get into the situation they did last year," a Singapore-based trader said.

The Islamic Republic was forced to slash fuel oil exports to the Middle East bunkering hub, Fujairah, by up to 60 per cent in the past two winters.

In late December, Turkmenistan halted daily deliveries of up to 23 million cubic metres of gas to Iran, blaming technical problems. At the time, Iranian officials said Ashgabat was also seeking a higher price for the natural gas supplied to Iran.

The disruption was especially harsh for Iran because it was hit with one of the coldest winters in decades, forcing up its demand for heating fuels.

Iran, Opec's second-largest oil producer, is currently importing 8 billion cubic metres (bcm) of gas from Turkmenistan, still just over half its annual contracted volumes.

Tehran says soaring electricity demand has also prompted it to develop nuclear fuel for power generation, as part of a planned network with a capacity of 20,000 megawatts by 2020.

But Western nations insist that Iran is seeking to build nuclear warheads under cover of a civilian power programme.

Sources familiar with Iran's fuel oil export programme said Tehran was also starting to build stocks more than four months ahead of winter, because it has more than 400,000 barrels per day (bpd) of refining capacity offline due to scheduled maintenance.

Because of the heavy refinery work, Iran is also looking to boost gasoline and gas oil imports from international markets. It will boost gasoline imports by about half to 170,000 bpd up from a monthly average of 95,000-115,000 bpd, traders said last week.-Reuters