Singapore: Top oil exporter Saudi Arabia will keep enticing Asian
term buyers to the kingdom’s crude by maintaining official selling
prices (OSPs) near the levels set for September, the lowest in as long
as 20 months, responding to a market awash with OPEC supplies.
The cut in the Arab Light OSP was in line with traders’
forecasts, but the reductions for medium and heavy grades were
deeper than expected, emphasising the weak sentiment for the
Middle East physical crude market.
A Reuters poll of refiners and traders had correctly
predicted Saudi Arabia would cut all its prices for crude
heading to Asia due to the steep contango in Dubai prices and
sluggish regional demand, especially after recent port and
refinery accidents in China and Taiwan.
"Saudi Arabia is under some pressure that term buyers are
not willing to take full volumes," said a trader with a
Northeast Asian refiner on Thursday.
"The Saudis could keep OSPs steady at low levels in the
near future," he added.
Saudi Arabia restored full contractual volumes of crude to
the majority of Asian buyers since January after cutting
supplies for most of 2009 to bring output in line with
Organization of the Petroleum Exporting Countries (OPEC)
quotas.
"There are no serious cuts in OPEC allocations over the
past few months and the demand of many refineries can be met by
term crudes," a second trader said, adding that explosions at
China’s Dalian port and Taiwan’s Formosa refinery in July also
curbed spot demand.
OPEC met only half its promised cuts in oil supply last
month, a Reuters survey showed last week, the lowest since
current supply targets were adopted in December 2008.
OPEC will next meet on Oct. 14 to decide on production
policy.
"OPEC compliance right now is very bad," said a trader with
a western trading firm. "Especially with flat prices so high,
and with little end-user demand, I guess the Saudis are
realistic. I think they are worried about the relative
attractiveness of their crude against the value of Oman
cargoes, which has cratered."
The value of October Oman has fallen to deep discounts of
$1.50-$1.60 to Dubai quotes.
"Low OSPs mean that everyone will maximise the
non-tradeable volumes and that the spot tradeable grades will
suffer," said another trader with a western trading firm.
COMPETITION INCREASES
The growing popularity of Russian ESPO Blend crude among
Asian refiners may have also prompted the OSP cuts, traders
said.
"They are fighting with ESPO to win market share," said a
fourth trader.
However, weaker prices and the approach of strong seasonal
winter demand could shore up demand for October-loading cargoes
which will start trading next week, traders said.
State oil giant Saudi Aramco has cut the price of Arab
Light to Asian buyers by 50 cents a barrel to 65 cents below
Oman/Dubai average for September, and cut the price of Arab
Medium crude by 40 cents a barrel to a $2.15 discount, both the
lowest since January 2009.
It also reduced the price of Arab Heavy for September to
Asia to a 19-month low of $3.40-discount to Oman/Dubai average.
The cuts will trigger similar falls in prices of Iranian,
Iraqi and Kuwaiti crudes, affecting some 7 million barrels per
day (bpd) of crude bound for Asia.
Lower OSPs would put further pressure on other spot Dubai
crude related grades, traders said.
Oil prices have rallied this week to a fresh three-month
high of almost $83 a barrel on Wednesday.
Supply from the 11 OPEC members with output targets, all
except Iraq, averaged about 26.95 million bpd in July, up from
26.75 million bpd in June.