Singapore: Refiners across Asia said on Monday they were not likely to buy more Saudi crude at current prices, highlighting the kingdom’s challenge in attempting to contain soaring markets by promising extra barrels.
The world’s top exporter is set to increase output to 9.7 million barrels per day (bpd) in July, United Nations chief Ban Ki-moon had said on Sunday. The extra 250,000bpd, if confirmed, would come on top of the 300,000bpd it promised to pump this month, most of which appeared to head West as margins for simple refiners in Asia slumped to their deepest losses in over a decade.
“We’ve already made our plans, and barring something out of the ordinary, I don’t foresee making any changes to them,” an official with a Japanese lifter said. Another lifter added: “We have no interest in extra barrels.”
State oil firm Saudi Arabian Oil Co., or Saudi Aramco, has made it clear to its Asian customers that they can have more crude if they want. Just over half the kingdom’s exports go to Asia.
But most Asian lifters declined offers of additional crude for lifting in July during the monthly allocation process that was concluded last week. Only one refiner took up the offer, buying 1 million barrels, an industry executive said.
The issue appears to be about quality.
Saudi Aramco is only offering to sell extra volumes of its medium-heavy Arab Light and Arab Extra Light crudes, while refiners in this region would prefer a mix of its different grades, two people familiar with the discussion said.
“It’s not an issue of whether they offer extra barrels, but of whether they meet our request for an increase in the share of medium and heavy crudes,” said a trading official with Sinopec Corp., the biggest refiner in Asia and China’s leading player. “Our plants have become extremely choosy now that losses are getting bigger.”
Saudi Arabia is in the process of bringing online its 500,000-bpd Khursaniyah oilfield, which will produce Arab Light crude. But price is also playing a part. Although margins for processing the kingdom’s heavier grades have plummeted, Aramco has also cut the discounts it offers on these grades to their lowest levels this decade, while keeping prices of its lighter grades at relatively high levels.
Refining margins for West Asia benchmark Dubai—similar to Saudi flagship Arab Light—run in a complex plant in Singapore rose above a $9 (Rs386) a barrel profit on Monday, and have averaged more than $7 since March.
But margins on the same crude run in a simple refinery—of which there are still many in China, India and South-East Asia—have been negative for the past month-and-a-half. “We may take more Saudi barrels depending on the terms they offer. They should come out with some attractive terms like price cuts or a change in the formula,” said an official with a state-owned refinery in India.
Though Asian refiners seem reluctant to take extra barrels above their monthly term volumes, several—especially in China and India—have ramped up imports of West Asian crude on a yearly basis, making it less pressing to make monthly adjustments.
Saudi Arabia raised exports to North Asia in the first quarter by 200,000bpd from the previous quarter, and by 300,000bpd versus a year earlier, when it limited output in line with the Organization of Petroleum Exporting Countries cuts.
Angela Moon in Seoul, Nidhi Verma in New Delhi, Aizhu Chen in Beijing and James Topham in Tokyo contributed to this story.