Saudi Oil Rations Signal Sweet U.S. Threat as Sour Crude Cut

  • Arab Medium, Heavy allocations said cut for some Asian buyers
  • Saudi Aramco said to give more lighter grades to compensate

Saudi Arabia is handing customers in the world’s biggest oil market sweet treats while limiting sour supplies.

The producer cut volumes of its Arab Medium and Arab Heavy crude for April sales to at least two North Asian refiners, according to people with knowledge of the matter. It instead gave the buyers more of the Arab Light and Arab Extra Light varieties to compensate, said the people, who asked not to be identified because the information is confidential. One other buyer in the region received cuts in volumes for all grades it sought.

Saudi Arabian Oil Co. also gave full volumes of contractual supplies to two other North Asian refiners, which mostly buy lighter “sweet” crudes that typically have less sulfur and are easier to process than heavier “sour” oils. Processors in South Asia and Southeast Asia got all the oil they asked for in April. The state-run producer known as Saudi Aramco didn’t respond to an email seeking comment sent to its press office in Dhahran outside regular business hours.

The strategy to offer more of its light crudes to customers reflects its pricing for supplies. While sweet crudes are typically costlier than sour oils, Aramco’s April official selling prices show the premium of one of its lightest grades to its heaviest has shrunk to the smallest since July 2015. That’s as it seeks to defend the market share of its less sulfurous varieties at a time when similar-quality crudes are rushing to Asia from the Americas, Europe and Africa.

For more on how the Saudis are looking to defend market share through pricing, click here

The increased supply of light crude along with lower pricing for the oils is Saudi Arabia’s latest effort to ward off rivals in Asia while leading output cuts as part of a deal between OPEC and other nations to erode a global glut. In January, people with knowledge of the matter said it’s continuing to pump lighter oil while fulfilling its promise to cut output by focusing curbs on medium and heavy varieties.

With Middle East producers including Saudi Arabia shouldering most of the global output cuts, regional benchmark Dubai crude has strengthened relative to other markers such as U.S. West Texas Intermediate and Brent. That’s raised the allure of rival supplies, including from American shale fields and Europe’s North Sea, for Asia.

For more on unusual oil supplies arriving in Asia, click here

U.S. WTI crude was $1.10 a barrel below the Dubai benchmark on Thursday after flipping to a discount in December for the first time since at least May. Brent, the benchmark for more than half the world’s oil, was $1.36 a barrel above the Middle East marker, after the premium shrunk last month to the smallest in more than a year.

In the first three months of this year, Saudi Arabia has largely spared Asia from its production curbs. Aramco will sell full volumes of contractual supply for March to the region’s refiners, people with knowledge of the matter said last month. In February, it was said to maintain supplies to nations such as South Korea, Japan and Taiwan while cutting crude shipments to some customers in China and southern Asian countries.

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