SINGAPORE (Reuters) – Top oil exporter Saudi Arabia is expected to lower the price of all its crude grades heading to Asia for September on slow demand from regional refiners deterred by their current high costs, traders said on Tuesday.
A poll of seven refiners and traders said they saw no upside for Saudi crude prices to Asia as they estimated the August official selling prices (OSPs) to be too expensive and after Abu Dhabi issued very competitive OSPs late on Monday.
“The Saudi OSPs are too expensive now and I think some have already lowered their requirements,” a trader with a refiner said.
A major North Asian refiner told Reuters last month that it had requested, and received, a 30 percent cut in term volumes for August as he did not need more and found the August OSPs too high.
Traders and refiners expected September Arab Medium to be priced at a discount to Oman/Dubai, down from a 30-cent premium for August, in what would be the grade’s first negative number since the May OSP.
Saudi crude OSPs are usually released 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.
Refining margins have turned negative in Asia for Dubai crude run in a simple refinery since June, and averaged at a 5-cent loss in July, Reuters data show.
Margins at a complex refinery have narrowed to a $2.36 a barrel profit for July, from $3.00 in June, and the lowest since November 2008.
September crude traded on the spot market has suffered from the refinery losses with all grades trading at weaker differentials than for August.
Bahrain’s Banoco Arab Medium traded at discounts of 30 cents or deeper to the Saudi Arab Medium OSP for September, indicating the OSP of the Saudi grade was above market value.
Responding to the market signals, Abu Dhabi National Oil Co (ADNOC) slashed Murban’s premium to Dubai quotes by a hefty 86 cents a barrel to $1.38 in its latest retroactive July OSP, the lowest premium in more than six years, and a much wider cut than expected.
“I was a little surprised by ADNOC’s drastic cut of July differentials,” said a trader with another refiner.
The sharp cut could force Saudi Arabia to consider a similarly deep reduction in rival Arab Extra Light, with two traders polled forecasting a 90-cent fall in the grade to a $1.00 premium to Oman/Dubai, which would leave it at its lowest since December 2008.
State oil giant Saudi Aramco, which has contracted to sell up to 3.38 million bpd of crude to Asia this year, sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.
Below are expected Saudi prices for September (in $/bbl against the Oman/Dubai average):