TOKYO/SINGAPORE, (Reuters) – Saudi Arabia, the world’s top oil exporter, will supply full contracted term volumes to Asia for July, but did not offer any extra as refineries showed little appetite for fuel oil-rich grades.
Asian refiners said they did not see the need for extra Saudi crude, seeming to support OPEC’s view that the world, and especially this region, has enough supplies, at least of heavy grades.
“We did not ask for additional crude, but they did not approach us with extra either. Nobody wants additional crude in Asia now, especially not the heavy type as the margins are not so good,” a trader with a North Asian refiner said.
Saudi Arabia is the only member of the Organization of the Petroleum Exporting Countries (OPEC) — supplier of more than a third of the world’s oil — with capacity to boost output quickly and significantly.
It would become clearer later in the day whether or not Saudi Aramco increased July crude allocations to Europe and the United States instead.
The market is looking for signs of rising Saudi crude exports after the kingdom said last month it was boosting oil production by 300,000 barrels per day (bpd) to help compensate for lower output from other producers as oil prices rose above $130.
U.S. investment bank Morgan Stanley helped push oil prices to an all-time high of $139.12 last Friday when it said the U.S. crude benchmark could rise to $150 a barrel by July 4.
The report said, based on sailings, Middle East oil exports were steady but that Asia was taking an unprecedented share, leading to lower shipments of crude to the United States at a time when inventories have fallen to nearly 300 million barrels, a level seen critical by some analysts.
This could mean that Saudi Arabia might look to the United States to ship more of its crude to help replenish stocks there.
ASIA STRUGGLES TO ABSORB HEAVY SUPPLIES
Refining margins for Middle East benchmark Dubai — similar to Saudi flagship Arab Light crude — run in a complex plant in Singapore have averaged a healthy $8 a barrel profit since the start of May, Reuters data show, boosted by record gas oil prices.
But margins on the same crude run in a simple refinery — of which there are still many in China, India and Southeast Asia — have slid to their lowest in more than a decade, dragged down by struggling fuel oil. They were around minus $4.20 a barrel on Thursday.
Most Saudi crude is fuel oil-rich, making extra volumes less attractive to many in Asia, which already buys slightly more than half of total Saudi crude exports.
Ten Asian refiners confirmed they had received full term volumes. Several sources said they had not been offered additional crude, and nine confirmed they did not ask for additional crude.
Officials at the three Indian state-run refiners said they received full volumes as per their term contracts.
They neither asked, nor were offered, additional volumes of Saudi crude for July, they added.
But one source said Saudi Aramco would have liked to sell more crude, though it was unclear if Aramco had formally offered additional volumes.
“They hoped for us to lift more but we have no more appetite. Where will the extra 300,000 bpd go?” a trader with another lifter said.
Asian customers have been receiving mostly full contracted volumes since November after OPEC agreed to raise output in an attempt to stem price rises, and had been expecting allocations to remain steady.
“We got full contracted volumes, and the Saudis did not offer more supplies. This is not surprising, the market was expecting a full volume this month,” said a South Korean refinery source.
OPEC has repeatedly declined consumer nations’ calls for more output, even as oil climbed to a record above $139 a barrel last week, blaming the price increases on speculation rather than a supply shortage.
Saudi Arabia said this week it will host a meeting of oil producers and consumers on June 22 to discuss oil prices, which it says are unjustifiably high.