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Saudi Arabia may raise July oil prices to Asia

June 03/2020

MOSCOW (MRC) -- Top oil exporter Saudi Arabia is expected to raise its official selling price (OSP) for all grades it sells to Asia in July, to track a jump in Middle East benchmarks although overall weak refining margins could cap price gains, industry sources said, as per Hydrocarbonprocessing.

Saudi Arabia is expected to increase the July OSP for Arab Light crude by $3.80 a barrel on average, a survey of five refinery sources showed. Forecasts ranged from an increase of USD2-USD3 a barrel to as much as $5 a barrel, as refiners margins weakened in May while a stronger DME Oman crude price, one of two underlying benchmarks for Saudi crude in Asia, has increased refiners feedstock costs, they said. Refining margins actually worsened by close to USD1 a barrel in May, one of the respondents said.

The DME Oman crude price was on average about USD3 a barrel more expensive than cash Dubai and Oman prices set by S&P Global Platts last month, according to Reuters calculations, pushing up costs for Asian buyers of Saudi Arabian and Kuwaiti oil.

Production from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, fell to their lowest in two decades in May and has strengthened Middle East crude prices. OPEC and its allies including Russia are considering bringing forward a meeting to this week to discuss an extension of production cuts beyond June.

Tight Middle East crude supply has narrowed cash Dubais prompt contango price spread by USD6.60 a barrel in May from April. Spot prices are lower than those in future months in a contango market. In addition, light crude, such as Arab Extra Light, are expected to rise more than heavier grades as gasoline and naphtha cracks have improved, two of them said.

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. State oil giant 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 earlier, in October 2019, McDermott International announced that it had been awarded a contract by Saudi Aramco and Total Raffinage Chimie (Total) for their joint venture (JV) Amiral steam cracker project at Jubail, Saudi Arabia. Amiral is a JV in which Aramco holds 62.5% and Total the rest. The plant, designed to produce 1.5 million metric tons/year (MMt/y) of ethylene, will be one of the world's largest mixed-feed crackers.

Aramco and Total launched their USD5-billion Amiral JV project in October 2018. The steam cracker will be fed with a mixture of 50% ethane and refinery off-gases. It will supply ethylene to a downstream 1 MMt/y polyethylene manufacturing complex and other petrochemical products. The project aims to fully exploit operational synergies with the adjacent refinery, owned by Satorp, another JV between Aramco and Total. Third-party investors, including Daelim and Ineos, will locate plants at the value park adjacent to Amiral with a combined investment of USD4 billion. A final investment decision is expected in 2021.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE, petrochemistry, Saudi Aramco.
Category:General News
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