Kuwait and Iran cut price of heavy crude exports

Singapore: Kuwait and Iran yesterday joined Saudi Arabia in slashing the price of their heavy crude exports to the deepest discounts in at least nine years, seeming to support Opec's view that the world has enough of its supplies.

The 35- to 50-cent mark-downs on the differential for July shipments hardly compensates for the surge in benchmark prices - US light, sweet crude is up $5 a barrel so far this week alone - but reflects the poorer profits for simple refiners who are unable to convert heavy Gulf crudes into higher-value fuels.

Kuwait cut the Official Selling Price (OSP) of its crude by 40 cents a barrel to a discount of $4.20 a barrel versus the Oman and Dubai benchmarks for Middle East shipments, the deepest since at least late 1998, according to data. Iran deepened Iran Heavy's discount by 47 cents to a $3.92 discount, a state oil company official said.

That came after Saudi Arabia, the world's biggest exporter, last week cut its Arab Medium OSP by 35 cent to a $3.70 discount to Oman/Dubai, the lowest since at least the late 1990s, in an attempt to appease customers who are suffering from deepening losses caused by producing residual fuel oil.

The price of fuel oil, the lowest-value major product of the refining process, has failed to keep pace with soaring crude values on falling demand, in turn curbing refiners' appetite for the heavy Gulf grades that yield more of it than lighter crudes.

Low margins

"Those who have cokers and can refine heavy crude are enjoying their crude. It's the simple refineries that are struggling with low margins," a source with a Middle East producer said.

In Singapore, the crack spread for fuel oil versus Dubai swaps stood at a steep $28.70 discount on Wednesday, doubling since end-January.

The heavy product has slumped as supplies built up in Singapore where storage capacity has sharply increased over the past year, while demand in China, the largest fuel oil buyer worldwide, cooled on soaring outright prices.

The discounts also highlight a growing split between amply supplied fuel oil and a tight market for products like diesel, which is causing prices for light and heavy crudes to diverge.