Bloomberg News

Saudi Arabia May Widen Gap Between Light, Heavy Oil, Survey Says

March 02, 2012

The price difference between Saudi Arabia’s lightest and heaviest crude oils for buyers in Asia is set to rise to the biggest in six months.

Saudi Arabian Oil Co., the state-owned producer, may offer Arab Extra Light crude for April at a premium of $4.30 a barrel more than benchmarks Oman and Dubai, up $1.20 from March, according to the median estimate of nine refiners surveyed by Bloomberg News. Arab Heavy (SOSPAHAS) may fall by 15 cents to a discount of $1 below Oman and Dubai. The price difference between the lower- and higher-quality grades, known as the light-heavy spread, will increase by $1.35 to $5.30 a barrel, the most since October.

“Direction is clearly for upward adjustments for lighter barrels and downward adjustments for heavier barrels for April price formula,” said Osamu Fujisawa, an independent oil economist in Tokyo who worked for Saudi Arabian Oil Co. and Royal Dutch Shell Plc (RDSA) for a combined 43 years.

The premium for Arab Extra Light is set to increase because it yields a greater quantity of naphtha, which has risen in value in the last month, the survey respondents said.

Naphtha’s premium to Brent crude, a measure of refiner’s profit from producing the gasoline component and petrochemical feedstock, surged 50 percent from $97.58 a metric ton on Feb. 6 to $146.24 on Feb. 28, according to data compiled by Bloomberg. That follows a 42 percent gain in the price difference in January, the data showed.

When processed in a simple refinery, Arab Extra Light yields 23 percent naphtha and 42 percent residual fuel oil, according to data from New York-based Energy Intelligence Group.

Heavier Grades

Arab Heavy prices will come down as the value for fuel oil decreases, according to the respondents in the survey. The grade yields 53 percent of residue and 15 percent naphtha a barrel after basic processing, according to Energy Intelligence.

Fuel oil’s discount to Dubai crude widened during February by 1,700 percent, according to data from PVM Oil Associates Ltd., a brokerage. The residue fuel was 39 cents below the benchmark oil grade on Jan. 31 and then dropped to a discount of $7.25 on Feb. 29.

Dubai crude’s backwardation, when the price for prompt delivery is greater than for later shipment, rose by 48 cents today. Swaps for March were $2.35 cents a barrel more than May, the highest since Dec. 8, according to PVM data. A wider backwardation implies stronger refiner demand for immediate oil.

The April Brent-Dubai (PVMMDBSP) exchange for swaps, which measures the European benchmark contract against the Middle East grade, fell 15 cents to $4.60 a barrel, according to PVM data. The May contract dropped 16 cents $4.45.

Vietnam Tender

There were no Dubai partials deals, according to a survey of traders who monitor the Platts pricing window. Oman futures for April fell fell 75 cents to $122.45 a barrel on the Dubai Mercantile Exchange at 5:30 p.m. Singapore time, with 1,521 contracts traded. The settlement price was $123.01 at 12:30 p.m. in Dubai.

PV Oil Co., Vietnam’s state-owned oil-marketing company, sold as much as 450,000 barrels of Rang Dong crude to Arcadia Petroleum Ltd. and Royal Dutch Shell Plc at premiums from $3.30 to $4 a barrel above benchmark prices, said three traders who participate in the market, declining to be identified because the information is confidential.

The cargoes sold for lower premiums than Petroleo Brasileiro SA (PETR4), known as Petrobras, agreed to earlier this month for a long-term supply contract for Rang Dong. The Brazilian company will pay from $5.30 to $5.50 a barrel for 10 cargoes, 200,000 barrels each, to be loaded during the six months from April to September, according to two traders familiar with the deal, which was signed Feb. 14. Rang Dong is priced as a premium to the average assessments of Indonesian benchmark Minas grade published by Platts and APPI.

Saudi April OSPs

The following table gives the median of nine responses to a survey of oil buyers in Japan, India, South Korea, Singapore and China. Prices for customers in Asia are set as a differential to the average of Oman and Dubai grades as assessed by Platts, the energy-information division of McGraw-Hill Cos. Prices are in U.S. dollars a barrel.

---------------------------------------------------------------
                    March        April (Est.)      Change (Est.)
Arab Extra Light    +3.10        +4.30             +1.20
Arab Light          +1.55        +2.55             +1.00
Arab Medium         +0.25        +0.75             +0.50
Arab Heavy          -0.85        -1.00             -0.15
Ex. Light v Heavy   +3.95        +5.30             +1.35
---------------------------------------------------------------

To contact the reporter on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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