Singapore : Top oil exporter Saudi Arabia is expected to lower the prices of all its crude grades heading to Asia for August on slow demand from regional refiners and intensifying competition from Russian ESPO crude.
Among the seven refiners and traders polled by Reuters, four said the differentials for light grades would likely fall more than medium and heavy grades as naphtha cracks slumped to eight-month lows.
"I expect Saudi to cut differentials across the board again, as the sentiment for both light and medium grades is not so good," said a trader with a Northeast Asia refiner. Last month, Saudi Arabia cut July official selling prices (OSPs) across the board for its crudes to Asia, with the prices of Arab Medium and Arab Heavy dropping to their lowest in 17 months.
However, it failed to lift market sentiment. Other sour grades also traded at wider discounts for Aug-ust loading. The value of Oman crude plunged to a discount of around $1.50 a barrel to Dubai quotes on the Dubai Mercantile Exchange and Abu Dhabi flagship Murban crude was last traded at a deep discount of 35 cents a barrel to Adnoc on the spot market.
Bucking the bearish trend, ESPO Blend crude from Russia's Eastern Siberia were sold at their strongest premium in nearly nine months in late June after Russia harmonised the grade's trade schedules with Middle East crudes. "Saudi is trying to secure demand in the Asia-Pacific region," said a second trader. "It is closely watching ESPO activity."
Refiners were also cautious, watching whether a recent improvement in margins would be sustainable. Margins in the Sing-apore oil hub for Dubai crude run at a complex refinery were $3.79 a barrel for the last 15 days, higher than an average of $3.40 over the last year.
Simple refineries in Sing-apore showed a profit of 6 cents a barrel over the last 15 days, versus profits of 36 cents over the past year.
Despite gas oil cracks hitting an almost 18-month high of more than $13 a barrel last week, excess supplies still weigh on naphtha and fuel oil. Gas oil cracks have since eased back to just above $12 on Wednesday.
Asian naphtha cracks plunged to an eight-month low of $84.38 a tonne this week, down from around $150 a tonne in mid-May, depressing light crudes. Asian fuel oil cracks weakened to between $6.00 and $7.00 a barrel in June from between $4.00 and $6.00 in May.
The Dubai intermonth contango held steady at between 40 and 50 cents between July and August.
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. Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.
