SINGAPORE: Saudi Arabia may find itself unable to fully serve its crude oil customers in Asia, the most important market for Middle East producers, as refiners are reluctant to accept the grades being offered.
Asian refiners want increased supplies of the lighter grades of crude to produce more expensive cleaner-burning fuels while Saudi Arabia is offering more of the heavy, high-sulphur grades.
Despite a surprise announcement by Saudi Oil Minister Ali Naimi about three weeks ago that the kingdom had ramped up output by 300,000 bpd or more than 3% from May 10, none of the additional barrels are likely to have been loaded onto tankers bound for Asia.
It’s not that state-owned Saudi Arabian Oil Co, better known as Saudi Aramco, is holding back shipments.
“We haven’t asked for incremental cargoes so we don’t expect to be given any,” an official with a leading South Korean refiner said yesterday.
Late Wednesday, Saudi Aramco notified term customers in Asia, mostly Japanese and South Korean refiners, that it will supply full contracted crude oil volumes in July.
Saudi Aramco is Asia’s top crude supplier and, like Iran and Kuwait, sells its cargoes only under term contracts.
Refiners, however, aren’t keen to buy more of the high-sulphur or “sour” cargoes that make up the bulk of output from these producers, due to poor margins for fuel oil and heavy products.
Instead, global oil prices have been driven higher in recent weeks by tightness in the supply of so-called “clean” products – light distillates such as gasoline, and middle distillates including diesel and jet fuel – which come mainly from processing light crude.
Recognising this, Saudi Aramco last week raised its monthly official selling prices for two of its most popular grades, Arabian Extra Light and Arabian Light, while marking down OSPs on Arabian Medium and Arabian Heavy.
As a result, the closely watched Saudi light-heavy price differential widened to a record $10 a barrel for July, a level unimaginable in August 2003 when it stood at a mere 40 cents a barrel.
Term lifters typically have the option to buy more cargoes if available. Although refiners say the latest Saudi OSPs are favorable, Saudi Aramco is understood to have only more of the heavier grades at its disposal.
Iran’s state-owned National Iranian Oil Co has been unable to offload about 25mn barrels of crude stored in tankers in the Arabian Gulf, mostly of heavy sour Soroosh and Norooz, despite steep OSP cuts.
Officials at Saudi Aramco don’t comment on the company’s policies.
The overnight term allocation announcement extends an arrangement for the ninth straight month and may be repeated for another two months, traders predicted.
That is because the Organisation of Petroleum Exporting Countries, of which Saudi Arabia is a key member, is scheduled to discuss output policy on September 9 in Vienna. – Dow Jones Newswires |
