Saudi Arabia increased pricing for September sales of all crude grades to Asia, the main market for the world’s largest oil exporter, amid a strengthening in the regional Dubai benchmark.
State-owned Saudi Arabian Oil Co. set the official selling price for Arab Light crude to Asia at a premium of 40 cents a barrel above the average of the Dubai and Oman grades, a benchmark used by Asian oil traders, it said in an e-mailed statement. The change was roughly in line with the 70-cent increase forecast by 9 refiners and traders in a Bloomberg survey on August 3. Saudi Aramco, as the producer is known, also raised pricing for its Super Light, Extra Light, Medium and Heavy grades sold in Asia.
“The increase in selling prices is a tough decision for Aramco,” Essam al-Marzouq, a Kuwait-based independent analyst and former vice president of Kuwait Petroleum International Co., said by phone. The inter-month spread for benchmark Dubai crude is strengthening. At the same time, competition in Asia’s crude market is at a peak, and profit margins for refiners in the region are under pressure, he said. “Under such circumstances, you need to choose between filling your pockets or filling those of your customers.”
Saudi Aramco kept the pricing for Arab Light to the U.S. unchanged at a premium of $1.55 a barrel more than the benchmark. The company also kept pricing for Medium crude to the U.S. unchanged and narrowed the discount for its Heavy grade to the U.S. by 20 cents a barrel. Saudi Aramco cut pricing for most grades sold to Northwest Europe and for all crudes to the Mediterranean region.
Refining margins in Asia have come under pressure in recent months as refiners there increased processing runs and Saudi Arabia increased diesel exports from its new Yasref refinery, a joint venture with China’s Sinopec that reached full capacity in June.
Saudi diesel exports jumped to 566,000 barrels a day in May from 280,000 barrels in April, the most since at least January 2002, according to official data from the Joint Organisations Data Initiative. The kingdom’s total products exports also reached a record in May at 1.32 million barrels a day, JODI data show.
The crack spread, or the profit refiners earn for processing benchmark Dubai crude into products, has fallen to an average of $15.23 a barrel in July compared with $17.89 a barrel in June, according to data compiled by Bloomberg.
Brent crude, a global marker, fell almost 50 percent last year amid a glut driven by sluggish demand and rising U.S. shale output. OPEC decided on June 5 to keep its production target unchanged to defend market share and force higher-cost producers such as U.S. shale companies to slow drilling.
The Organization of Petroleum Exporting Countries has exceeded its production target of 30 million barrels a day since May 2014. Saudi Arabia boosted output to 10.57 million barrels a day in July, the highest since Bloomberg began compiling monthly data in 1989.
Middle Eastern producers are competing increasingly with cargoes from Latin America, North Africa and Russia for buyers in Asia. Persian Gulf producers sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia the benchmark is the average of Oman and Dubai oil grades.