Saudi to lower heavy grade crude prices
Riyadh, November 3, 2012
Top oil exporter Saudi Arabia will probably lower the official selling prices for heavy and medium grade crudes that it sells to Asia in December, driven by weakening product margins and depressed demand, a Reuters poll showed.
The producer may lower the December official selling price (OSP) for Arab Heavy by 50 cents from the previous month while that for Arab Medium may be cut by 15 cents, according to the median estimates of five traders and refiners.
The OSP for Arab Light may rise by 10 cents while that for Arab Extra Light may be left unchanged, the poll showed.
"The margins are not looking good and the Persian Gulf (spot) crude market has come off a lot," said a senior trader with a North Asian refiner. "Prices will have to be adjusted lower."
The Asian spot market for Middle East crude for December cargoes was more subdued from the previous month, which had seen premiums on light and medium grades jump to multi-month highs.
Premiums on Middle East grades eased because of a sharp spike in OSPs last month, traders said. (CRU/M)
OSPs on heavy grades may be cut by most Middle East producers after front month fuel oil cracks dropped to the lowest in 17 months on higher supplies.
The average discount on December fuel oil cracks widened to $8.4 in October, the weakest since May 2011.
Gasoil cracks, which had firmed in August and September, slipped below $19 per barrel last month as demand from China and India fell on slower economic activity.
Naphtha cracks held firm, with the average discount holding around $7.5 a barrel in October from $8.8 per barrel in August, sparking expectations that light and extra-light grade OSP may remain unchanged or rise slightly.
Wider crack spreads, or the profit made by a refinery by processing crude into specific products, give producers such as Saudi Arabia room to raise their selling prices, while weakness in cracks may suggest demand for crude will be subdued.
Complex refinery margins have been steadily easing to about $6.7 a barrel by the end of October from above $10 per barrel at the start of the month, strengthening the case for steady to lower OSPs.
Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting some 7 million barrels per day (bpd) of crude bound for Asia.-Reuters