Top oil exporter Saudi Arabia could boost light crude prices to Asia in December, supported by a rebound in distillate margins and spot premiums for Middle East oil this month, trade sources said Friday.
After cutting prices for two consecutive months, state-owned oil giant Saudi Aramco could increase the official sales price (OSP) of flagship Arab Light crude by 30 cents to 90 cents in December, six respondents said in a Reuters poll.
The price spike comes as refineries are ramping up production to meet increased demand as countries ease COVID-19 movement restrictions, while oil consumption in the power sector rises amid a global crisis in coal and natural gas. read more
However, the wide range of values in the survey indicates uncertainty about how much Saudi Aramco will price mark based on its pricing formula, they said, as the producer has cut prices more than expected in recent months to entice buying. .
“They can afford to move back to model-based OSPs,” said one of the respondents.
“Previously, their OSPs were too high. But after the big reset, the Saudi (crude) value seems more in line with the spot (levels) again.”
The monthly change in the first and third month price differential for the Middle East Dubai benchmark generally guides how much Saudi Arabia’s OSP would increase or decrease from Arab Light. This month, the spread widened by an average of 86 cents a barrel in backwardation. In backwardation, immediate prices are higher than those in future months, indicating a shortage of supply.
For other grades, four respondents expect Arab Heavy’s OSP to remain stable or rise, following strong spot premiums for Iraqi crude of similar quality, although two others said a drop in fuel oil margins could lead to cuts of prices.
Arab Medium’s OSP may also rise after the spot spread on Banoco Arab Medium crude rose to a premium this month, another respondent said.
Saudi crude OSPs set the trend in Iranian, Kuwaiti and Iraqi prices, affecting some 9 million barrels per day (bpd) of crude destined for Asia.
Saudi Aramco is likely to release monthly prices after a meeting between the Organization of the Petroleum Exporting Countries and its allies on November 4.
Saudi Aramco officials, as a matter of policy, do not comment on the kingdom’s monthly OSPs.