By Anthony Dipaola , Serene Cheong , and Sharon Cho
Saudi Arabia raised oil pricing for October sales to Asia, increasing its lighter grades for a second consecutive month, in an indication the world’s largest crude exporter sees strengthening demand in its biggest market.
State-owned Saudi Arabian Oil Co., known as Saudi Aramco, increased its official pricing for Arab Light crude to Asia by 55 cents to 30 cents a barrel more than the regional benchmark, it said Monday in an emailed statement. The company had been expected to raise pricing by less than that, according to a Bloomberg survey.
“The increase is indicative of strength in the Asian market,” Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy, said by phone. The impact of storm Harvey in the Gulf of Mexico, which cut U.S. refining output and drove up gasoline prices, could also have driven to larger-than-expected gains in the Saudi pricing for light crudes to Asia, Mills said. Potential U.S. demand for imported fuel could boost refining profits in Asia, he said.
OPEC’s biggest producer is cutting shipments as part of its pledge to curb output, together with other major producers, to shrink a global glut. Aramco is trimming sales to Asia for September, with the reductions across grades, people with knowledge of the matter said last month. It will curtail sales of its Arab Extra Light crude through October on field maintenance, others said last week.
Benchmark Brent crude has dropped about 8 percent this year on signs that global supply still outweighs demand, eroding optimism that the cuts by the Organization of Petroleum Exporting Countries and other producers can bolster the market. Russia is likely to back a further extension of the producers’ agreement, judging that it has helped to stabilize the market, Arkady Dvorkovich, the country’s deputy prime minister, said in an interview with Bloomberg TV. It’s still too early to make a definitive decision on prolonging the cuts, which run through March 2018, he said.
“Refining margins in Asia have been strong,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., speaking last week of the expected pricing increase. “It’s a sign of stronger demand.”
Aramco’s increase for October pushes Arab Light for Asia to a premium for the first time since March and to the highest level this year, according to data compiled by Bloomberg. It was expected to raise pricing by 35 cents a barrel to a premium of 10 cents to the benchmark for Asia, according to the median estimate in a Bloomberg survey of six refiners and traders. Saudi Aramco raised pricing on its other grades shipped to Asia by between 30 cents and 80 cents a barrel for October, according to the company statement.
Aramco also raised most crude pricing to the U.S. for October, leaving only its Medium grade unchanged. Buyers in Asia and the Mediterranean region will see increases across all grades for October, while Aramco cut most pricing for sales to Northwest Europe in October.
Middle Eastern producers compete with cargoes from Latin America, North Africa and Russia for buyers in Asia. 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.
— With assistance by Claudia Carpenter