Photographer: Peter Kollanyi/Bloomberg

Aramco Charges Asia More for Oil as Refinery Profits Swell

  • Light oil to Asia raised 30 cents, more than analysts expected
  • Asian prices increased as profit improves for refiners

Saudi Arabia nudged pricing higher for December sales of all its crude grades to Asia, where refiners that buy its oil are earning bigger profits. The world’s largest crude exporter cut pricing for U.S. customers as it fights to retain market share.

State-owned Saudi Arabian Oil Co. increased its official selling price for Arab Light crude to Asia by 30 cents to a discount of $1.30 below the regional benchmark, the company said in an e-mailed statement. That beat expectations for a 25-cent increase, according to the median estimate of of six refiners and traders surveyed by Bloomberg this week.

“Asia’s refinery margins are good, so the Saudis see enough demand to warrant slightly higher prices,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone. “They’re still pursuing the market share approach to keep up sales in the region.”

Oil from the Middle East competes in Asia with cargoes from Latin America, North Africa and Russia. In the U.S., production augmented by output from shale wells has displaced some imported oil and forced sellers of non-U.S. crude to look for buyers elsewhere, intensifying the contest for sales. Saudi Arabia has led the Organization of Petroleum Exporting Countries to squeeze some higher-cost producers out of the market by maintaining production levels even as prices fall.

Brent’s Tumble

Brent crude, a global benchmark, has slumped about 40 percent in the past year, dropping from more than $115 a barrel in June 2014 to trade at about $50 this week. That price decline has helped Asian refiners earn more from processing crude into fuels over the last month, according to data compiled by Bloomberg.

Saudi Aramco, as the state-owned company is known, cut pricing for Arab Light crude to the U.S. by 20 cents to a premium of 45 cents a barrel above the North American benchmark. The company widened the discounts of Medium and Heavy grades by 20 cents each and trimmed the premium for Extra Light by 10 cents.

“There’s heightened competition for market share among imports into the U.S. as domestic production there remains robust,” Hansen said. “To maintain the level of attraction for their crude, the Saudis needed the cuts.”

European Cuts

Saudi Aramco also reduced pricing for buyers in Northwest Europe and the Mediterranean region. The company widened discounts to Northwest Europe by as much as $1.35 for December, and deepened discounts to the Mediterranean from the Saudi port of Ras Tanura by as much as 50 cents.

Swedish refiner Preem AB said Thursday it bought its first cargo of Saudi crude in two decades, while Poland’s Grupa Lotos SA said Monday it purchased a tanker-load from the Gulf state as an exception to its mainly Russian supply.

OPEC decided in December and again in June to keep its production target unchanged at 30 million barrels a day, a level it has exceeded every month since May 2014. Analysts including PIRA Energy Group founder Gary Ross and Harry Tchilinguirian of BNP Paribas said they expect OPEC to stick with this policy when its members meet on Dec. 4.

‘Positive’ Role

“I don’t think they have to do anything,” Ross said Monday in an interview in Singapore. Demand will rise as output from non-OPEC countries ebbs, helping to balance the market next year, he said.

Saudi Arabia plays a “positive” role influencing market stability in the interest of producing and consuming countries, Ali Al-Naimi, the country’s oil minister, told envoys from several Asian nations that buy its crude, state-run Saudi Press Agency reported on Oct. 21.

The country boosted output to a record 10.48 million barrels a day in June, according to the International Energy Agency, and pumped 10.38 million barrels daily last month, data compiled by Bloomberg show.

Producers in the Persian Gulf region 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 and for the U.S. it’s the Argus Sour Crude Index. European cargoes are priced against Brent.

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