SINGAPORE - Saudi Arabia will likely put an end to four months of rising differentials for its heavy crudes and cut their official selling prices for May after the fuel oil crack weakened, traders said on Friday. Nine customers of Saudi crude and one trader had varied expectations of the size of the cuts, but all those polled by Reuters expected a fall in differentials for both Arab Medium and Arab Heavy crude, Saudi Arabia’s two heaviest grades.
“Since the fuel oil crack has not performed as well in March than in February, I guess Arab Medium could fall to Oman/Dubai minus $2.00 or below, and Arab Medium to flat or minus 20 cents,” a term buyer said.
Saudi official selling prices set the trend for Iranian, Kuwaiti and Iraqi prices, affecting some 7 million barrels per day (bpd) of crude sold to Asia. They are usually released around the fifth of each month.
Saudi Aramco raised the price of Arab Medium crude to a premium for April, the first time since 2003, up by a more-than-expected $1.00 to a premium of 50 cents a barrel, as it kept sales to Asia well below full volumes.
“They should to cut by more than $1.00 for the market to regain confidence,” another buyer said.
The fuel oil crack nearly halved in March, averaging $7.24 a barrel below Dubai swaps, Reuters data show, down from a strong discount of $3.86 for February.
OPEC cuts, a large part of which have been shouldered by Saudi Arabia, have weighed on exports of heavy sour grades to Asia, and helped drive the value of fuel oil higher up till February.
Saudi Arabia has cut supplies to Asia by up to 500,000 bpd over the past few months, as OPEC agreed a series of cuts to remove 4.2 million bpd from the market in an attempt to stop the slide in oil prices.
Arab light could rise
Forecasts for Saudi Arabia’s flagship Arab Light were more mixed, with some traders expecting it to rise in line with a stronger gas oil crack and Dubai crude, while others said it was also under pressure from weaker fuel oil cracks.
Most traders polled expected Arab Extra Light, which is similar to Abu Dhabi’s Murban crude, to rise on the back of the stronger gas oil crack by the end of the month.
The gas oil crack averaged $7.74 a barrel above Dubai swaps in March, down 52 cents from the February average, according to Reuters data. But it rose towards and above $10 during the last week of March, prompting hopes of a demand recovery.
State oil giant Saudi Aramco, which has contracted to sell up to 3.38 million barrels of crude to Asia this year, sets its crude prices based on recommendations from customers and after calculating the change in the value of its crude over the past month, based on yields and product prices.
