The refinery at Mina Al Ahmadi, 40 km south of Kuwait City. Kuwait is Opec’s fifth-largest producer. Image Credit: AP

Kuwait City: Kuwait Petroleum Corporation cut its February official selling price for crude oil sold to Asia under long-term contracts to the lowest level in five months after declining processing profits reduced demand.

The state-owned company dropped its official rate by 35 cents to a discount of $1.20 (Dh4.40) a barrel to the average price of benchmark grades Oman and Dubai from a discount of 85 cents a barrel in January, said a company official who asked to remain unidentified citing company policy. That's the lowest since September.

Refiners in Asia, particularly in Japan and South Korea, have cut back their processing runs as falling demand for oil products have limited their profit margins.

The margin from processing Kuwaiti crude in a facility in Singapore with the ability to upgrade fuel oil into gasoline or diesel, known as the cracking margin, was at minus 33 cents a barrel yesterday, according to netback data from Bloomberg and EnSys Energy. Kuwait was the fifth-largest producer among members of the Opec in December, pumping 2.25 million barrels a day. The country sold about 83 per cent of its crude to Asia in 2008.

Proven reserves of 104b barrels

Kuwait has proven crude oil reserves of 104 billion barrels, estimated to be 10 per cent of the world's reserves. Kuwait's oil industry accounts for 80 per cent of government revenue. Petroleum and petrochemicals account for nearly half of GDP and 95 per cent of export revenues. The increase in oil prices since 2003 resulted in a surge in Kuwait's economy.

Kuwait's current oil production of 2.8 million bpd is expected to increase to 4 million bpd by 2020. To realise this production target, Kuwait Petroleum Corporation plans to spend $51 billion between 2007 and 2012 to upgrade and expand the country's refineries.