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In A Bold Move, Saudis Raise Crude Prices For Asia

Tanker

Saudi Arabia’s Aramco said yesterday that it will raise the October price of its Arab Light crude oil blend for Asian clients by US$0.55 a barrel to a premium of US$0.30 to the Oman/Dubai average. The increase signals growing demand for Saudi crude and improved refining margins in Asia thanks to the supply disruptions in the Gulf of Mexico that Hurricane Harvey caused.

The average profit margin for a refinery in Singapore, Reuters’ Clyde Russell noted in a recent column, hit US$10.21 a barrel in the wake of Harvey. Aramco is certainly eager to take advantage of the greater demand these margins are motivating. Yet, Russell added, the effects of Harvey will be short-lived, and Asian refiners will need to prepare themselves for a slump in margins. This slump will probably lead to lower demand for Saudi oil, as U.S. production and refining capacity return to normal.

For Northwestern Europe, Aramco reduced its official selling price for Arab Light by US$0.10 to a discount of US$2.15 to ICE Brent crude. The price for Saudi oil for the U.S., however, was also lifted, by US$0.10 for October shipments compared with this month’s price. The new price represents a US$1.30 premium to the Argus Sour Crude Index. Related: Gazprom’s Gas Dominance Grows In Europe

Last month, Aramco announced it would cut its Arab Light shipments to Asia in September by at least 520,000 bpd in line with its commitments under the OPEC oil production cut deal. This will cost it market share, especially if it keeps the cuts over the next months, so grabbing the opportunity to make more money from Asian shipments while refiners enjoy higher margins is the sensible thing to do.

Securing the European market with lower prices is also prudent, but it is a smaller market than Asia, both in terms of demand and demand growth prospects. Asia remains the key market for oil exporters and this market is already looking for alternatives to Middle Eastern oil.

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