China’s Purchases of Saudi Crude to Drop in June

Higher Saudi crude prices and weakened refining margins will see Chinese refiners lift lower volumes of oil from the world’s top oil exporter in June compared to May, sources familiar with the plans told Reuters on Friday.

This month, China is set to buy a total of 45 million barrels of Saudi crude. The volume is then expected to drop by 5.8 million barrels in June, with the lower supply mostly in the Arab Medium and Arab Heavy crude grades, according to Reuters’ sources.   

The Kingdom is also limiting some heavier crude supply to prepare for additional volumes of crude to burn for electricity in Saudi Arabia in the summer months, they added.

Earlier this week, Saudi Aramco raised the official selling price (OSP) of all the grades it exports to Asia, with the flagship grade, Arab Light, for delivery in June set to become $0.90 per barrel more expensive.  

The move was widely expected by the market and refiners in Asia, who had forecast that Aramco, the world’s top crude oil exporter, could raise the price of Arab Light for Asia in June by $0.70-$0.90 to nearly a $3.00 a barrel premium over the Oman/Dubai average, the benchmark off which Middle Eastern crude going to Asia is priced.

The increase, following strengthened Middle Eastern quotes this month, has now lifted the price of Arab Light crude to the highest premium over the Oman/Dubai benchmark in five months.

The new price for a barrel of Arab Light comes in at $2.90 over the regional Oman/Dubai benchmark, which signals a tighter supply of crude, ING’s commodity strategist Warren Patterson said in a note this week.

According to Bloomberg, the price hike for Asian deliveries of Saudi crude is likely to have an adverse effect on Chinese refiners’ margins, especially coupled with predictions of weaker diesel demand.  

By Charles Kennedy for Oilprice.com

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