Saudi heavy crude prices stay firm

Singapore: Saudi Arabia is expected to raise or hold steady the differentials for November official selling prices (OSPs) of heavy crudes due to firm fuel oil cracks but may cut levels for lighter grades on slow distillate demand.

Seven out of eight refiners and traders polled said differentials for the Arab Medium and Arab Heavy grades would rise or stay unchanged from the October OSPs, as Asia's fuel oil cracks scaled to five-year highs last month.

"The spot market was so strong, especially in the first half of September, together with strong fuel oil cracks, prices of heavier grades could rise by 20 to 30 cents for November," said a source at a refiner.

Asia's fuel oil market has been on a roll, with its crack spreads jumping to discount of $1.62 a barrel to Dubai swaps - the strongest since October 10, 2004.

Fuel oil's supply shortage is expected to last until the end of the year as long as global refinery runs are kept low due to poor distillate cracks.

Saudi lighter grades, however, are expected to see downward pressure, as the naphtha market weakened from recent highs and the October gas oil crack slumped to a two-month low of around $6.40 a barrel last week.

"Logically, you would expect some softening in the lighter OSPs," said one trader.

Naphtha's crack spreads have weakened from levels above $100 a tonne recently to around $85 a tonne versus Brent crude.

Distillates demand was slack amid a global glut despite the coming winter and the new prompt-month November crack was valued at a low $7.19 a barrel above Dubai swaps on Thursday.

The end of the driving season in the US - the world's top oil user - has led to lower petrol consumption, compounding the glut in Asia, traders said, forcing refiners such as Taiwan's CPC Corp to shut a 25,000 barrels per day gasoline unit for an indefinite period due to anaemic margins.

Saudi Arabia usually releases its crude OSPs 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.