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Saudi Arabia may cut light crude prices to Asia in February

January 14/2020

MOSCOW (MRC) -- Saudi Arabia, the worlds biggest oil exporter, may cut the prices of its light crude grades sold to Asia in February on signs of slowing demand ahead of the regions peak refinery maintenance season, reported Reuters with reference to six trade sources' statement.

The official selling price (OSP) of flagship Arab Light crude in February could fall by 20-30 cents a barrel, four of six respondents in a Reuters survey said. State oil company Saudi Aramco raised the Arab Light OSP to the highest in six years in January, the fourth month of increases.

Aramco may cut the OSP as the price structure for Middle East crude benchmark Dubai indicated falling crude demand in February as cargoes loading that month are likely to arrive when Asian refineries begin shutting for maintenance in March, the sources said.

The average backwardation between the first and third month cash Dubai price so far this month narrowed by 15 cents from the previous month, Reuters data showed. In a backwardated market prompt prices are higher than those in future months.

The OSPs are also likely to drop as the gross product worth, which measures the value of a crude in terms of the fuels it yields after refining, for Saudi oil grades are lower than last month because of falling refining margins, one of the respondents said.

"Refining margins are under pressure," he said.

Arab Extra Light may see a bigger price cut in February after naphtha cracks weakened this month, the sources said.

However, firm demand for January-loading cargoes and rebounding fuel oil margins will support the OSPs for heavier Saudi oil, they said.

Most of the survey respondents expect the February OSP for Arab Medium to remain unchanged or drop slightly while the view was split between an expected price hike and price cut for Arab Heavy.

Supplies of these grades could remain tight as demand from new Chinese refineries will continue to rise in 2020 even as Saudi Arabia and Kuwait are working on resuming output from their joint production in the Neutral Zone between them.Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

Saudi Aramco officials as a matter of policy do not comment on the kingdoms monthly OSPs.

As MRC wrote before, Saudi Aramco, which temporarily lost half of its oil production following the September 14 attacks on two key oil facilities, has been running its local refineries at full capacity since November 2019 and is forging ahead with plans to start up new refineries. The company is also starting up a joint venture refinery in Malaysia in 2020. According to Aramco's bond prospectus released in April, the refining and petrochemical joint venture with Petronas - the Malaysian national oil company - collectively known as PRefChem, was supposed to start this year.

The PRefChem joint venture includes a 300,000 b/d refinery, an integrated steam cracker with capacity to produce 1.3 million mt of ethylene located in Johor, Malaysia. Aramco was supposed to provide a significant portion of PRefChem's crude supply under a long-term supply agreement. Jazan and PrefChem will help Aramco reach a gross refining capacity of 5.6 million b/d, it said in the prospectus. The company currently owns and has stakes in four refineries abroad with a total refining capacity exceeding 2 million b/d.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,904,410 tonnes in the first eleven months of 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments increased from both domestic producers and foreign suppliers. The PP consumption in the Russian market was 1,161,830 tonnes in January-November 2019, up by 7% year on year. Deliveries of all grades of propylene polymers increased, with the homopolymer PP segment accounting for the largest increase.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.


mrcplast.com
Author:Margaret Volkova
Tags:PP, PE, crude and gaz condensate, homopolymer PP, propylene, ethylene, petrochemistry, Saudi Aramco, Russia, Saudi Arabia.
Category:General News
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