SINGAPORE,(Reuters) – Saudi Arabia is unlikely to offer extra crude for February to Asian buyers, even after oil hit $100 last week, as most refiners have little need and ability to process additional heavy sour crude, refining sources said.
The kingdom raised term exports to Asia by a tenth for November to full contracted volumes after it convinced other OPEC members to boost daily output by 500,000 barrels from Nov.1, in response to a jump in prices past $80 a barrel for the first time in September.
OPEC’s largest exporter has kept supplying at full volumes since November and could offer more in an attempt to cool down prices after U.S. crude surged above $100 and held above $90 as the country has the largest spare output capacity.
But refiners said they did not need much more Arab Light, Medium and Heavy grades that Saudi Aramco could offer because they can get higher-quality grades from alternative sources such as West Africa, albeit at higher prices.
“We can use many other grades on the market,” a trader with a refiner said, adding that the company had not requested extra barrels.
Allocations for February could be released over the weekend or on Monday, and most buyers expected them to be steady.
Saudi Arabia is believed to have discreetly supplied small additional volumes to Asia for January after some buyers requested extra barrels.
A few customers are believed to have asked for additional volumes for February. One possibility is India, where refiners are negotiating their April 2008-March 2009 term volumes with Saudi Aramco and are expected to seek larger contracts as new complex plants, such as Reliance’s 580,000 barrels per day facility, come on stream.
China has ramped up its imports of Saudi crude by a third for 2008 from 2007, lifting imports to around 720,000 (bpd), making it unlikely to ask for additional volumes.
Many refiners in Asia are quite fond of the middle distillates-rich Arab Extra Light crude, whose official selling price (OSP) for February was cut by 40 cents over the weekend to $4.95 a barrel above Oman/Dubai prices.
But Saudi Arabia’s extra 2.3 million barrels per day (bpd) of spare capacity mainly comprises the heavier Arab Light, Medium and Heavy grades, which many Asian refineries are not complex enough to run at high volumes.
Saudi Arabia is believed to have exported around 1.15 million barrels of Arab Extra Light in 2007, a trader said, a mere 16 percent of Saudi Arabia’s total exports.
“I think we would not ask for additional barrels because the crude is too heavy,” said a trader with another refiner.
Significant additional volumes, if offered, are more likely to head to Europe and the United States as a result.
Saudi Arabia says it can pump an additional 2.3 million bpd. But both the IEA, an adviser to industrialised countries, and the U.S Energy Information Agency (EIA) put Saudi spare capacity lower at 1.8 million and 1.53 million bpd, respectively.
Some ministers and officials of the Organization of the Petroleum Exporting Countries have said over the past week that most members of the cartel were pumping at full capacity, constraining its ability to tame $100 oil, and leaving only Saudi Arabia with the capacity to tame oil prices.
And an OPEC delegate said this week that the group was unlikely to change oil output policy at its meeting on Feb. 1 if prices stay close to their current level.