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Page added on January 8, 2017

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Saudis Said to Duel Rivals by Curbing Heavy Oil Over Light Crude

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Saudi Arabia is staying in the battle for market share by continuing to pump the type of oil that’s similar to rival U.S. and African supply, while fulfilling its promise to cut output by focusing curbs on other varieties.

The nation plans to idle some fields producing the Arab Medium and Arab Heavy grades to meet its output reduction target, according to people with knowledge of the matter, who asked not to be identified because the information is confidential. That would help the world’s top exporter concentrate more on selling more-profitable crudes such as Arab Light and Extra Light, adding to growing global supplies of similar-quality oil and pitting it against other producers.

A majority of the output cuts that are part of a historic deal between OPEC and some other producers aimed at curbing a global glut are set to come from the Middle East. That’s made the region’s crude pricier relative to other supply priced off U.S. West Texas Intermediate and Europe’s Brent markers. While Saudi Arabia has pledged to pump less oil, it’s also trying not to give up sales in Asia, the world’s biggest market, to competing supply from the Americas and Africa.

The discount of Dubai oil shrank to the smallest in 15 months over Dated Brent this week, while the Middle East benchmark turned costlier than U.S. marker WTI last month, data compiled from PVM Oil Associates show.

Saudi Arabian Oil Co. has informed some Asian refiners of a new round of export cuts in informal discussions ahead of official monthly crude allocations. The company, known as Saudi Aramco, has told customers of possible measures leading up to the cuts, with each scenario signaling reductions are unlikely to be more than 10 percent of contracted volumes for some buyers, said the people.

Aramco’s press office didn’t immediately respond to an e-mail seeking comment.

The cutbacks in February to Asia will still be smaller than other regions such as the U.S. and Europe because it remains Saudi Arabia’s most valued market, one of the people said. Last month, sales to parts of Southeast Asia and South Asia including India were reduced while buyers in North Asia were largely spared.

The Asia Pacific region will use 33.87 million barrels a day of oil in 2017, accounting for more than a third of global consumption, data from the International Energy Agency show. That’s an increase from estimated demand of 33.03 million barrels a day in 2016. In the Americas and Europe, oil use is seen staying flat this year, according to the Paris-based IEA.

New Norm

Refiners, including China’s independent processors, will try to make crude purchases that take advantage of relatively cheap lighter varieties of oil as the spread between Brent and Dubai remains narrow, industry consultant Energy Aspects Ltd. said in a note e-mailed Friday. Narrower light-heavy differentials will be the “new norm,” according to the report.

The Brent-Dubai exchange of futures for swaps, a measure of the difference in prices between the two benchmarks, was at $1.68 a barrel on Wednesday, according to PVM data. It was at $4.55 in January 2016. While U.S. WTI crude traded 81 cents above the Dubai marker a day before OPEC’s decision to curb output, the Middle East benchmark was 45 cents higher on Jan. 5, according to Bloomberg calculations based on data from PVM.

Saudi Energy Minister Khalid al-Falih said last month that he didn’t expect a big supply response from American shale producers in 2017. But Goldman Sachs Group Inc. says the kingdom is wrong, and forecasts an increase of 800,000 barrels a day in U.S. annual production growth at a price of $55 a barrel for West Texas Intermediate crude.

bloomberg



10 Comments on "Saudis Said to Duel Rivals by Curbing Heavy Oil Over Light Crude"

  1. joe on Sun, 8th Jan 2017 7:56 am 

    Clever plan, that cuts to the heart of peak oil. Heavy and tight oil are not the future. Once Aramco floods the world with cheap easy oil and everyone buys shares because Saudi has ‘market share’ it will be too late. Peak oil is here, and nothing will stop the change thats coming. Saudi is dreaming, just like the rest of us. They are basically ripping us off knowing they will make high marginal profit pumping the last of the good stuff.
    If I was non
    Opec, Id flood the world now, rather than wait for price hikes. But isnt Trump promising exactly that? Not so stupid I think.

  2. rockman on Sun, 8th Jan 2017 11:12 am 

    Joe – “But isnt Trump promising exactly that?” As detailed before I serious doubt US oil production will see any increases under the PEOTUS on the order of what we saw under President Obama. In fact it wouldn’t be a great shock IMHO to see US oil production lower at the end of his 4 year term as it is when the PEOTUS takes the oath in a couple of weeks.

  3. Boat on Sun, 8th Jan 2017 2:54 pm 

    Joe,

    The Eia reports every month imports by api. You will find the US primarily buys heavy oil. Why? It’s cheaper and needed to mix with fracked US light fracked oil. Input to US refineries is an api of around 32. That is not light and extra light oil.

  4. Sissyfuss on Sun, 8th Jan 2017 4:51 pm 

    I wonder if Ape and Short ran off together and got hitched. It is legal, ya know.

  5. Cloggie on Sun, 8th Jan 2017 5:20 pm 

    I wonder if Ape and Short ran off together and got hitched.

    Not, it is different…

    Friday was found frozen to the driver-seat of his car, while looking for palm trees in the Northern Territories that were supposed to be growing there because of global warming.

    Short is being sued by a client because peak oil has been called off and said client is now stuck with 200,000 body warmers he thought would be in great demand after 2015.

  6. Sissyfuss on Sun, 8th Jan 2017 7:18 pm 

    C’mon Clogs, I know they won’t take that lying down. Will ya, guys?

  7. rockman on Mon, 9th Jan 2017 8:58 am 

    “You will find the US primarily buys heavy oil.” As do the eastern Canadian refineries. And Canada is lacking the light oil to blend and thus imports it also. Before the Eagle Ford Shale boom the US also had to import condensate. Between refinery demand and condensate to blend with Alberta oil sands production to make dilbit Canada has imported almost 400 million bbls of US light oil just since 2010.

    And yes: there never has been an effective ban on exporting US oil. In fact, as the law is written, Canada was officially exempt from the “ban” law.

  8. Nony on Mon, 9th Jan 2017 9:39 am 

    1. Selling less heavy oil makes sense for SA as they are meeting their cut requirements. Heavy oil gets less revenue (and margin) than light oil. So of course, they cut the low quality stuff first. $$$, people, $$$.

    2. These articles about different geographies or different qualities are pretty silly. Overall, what matters is supply and demand. Buyers and sellers will look all over to make (or save) a buck or two. So “keeping share in Asia” is irrelevant. You just lost some share in Europe in the mean time.

    3. I’ve been involved in buying large cargos of EF oil for East Coast Canada. The export ban was helpful to buyers (and hurt sellers/producers) because we had a captive seller. A few bucks extra on differentials is like free money.

  9. rockman on Tue, 10th Jan 2017 5:31 pm 

    “…because we had a captive seller.” You mean the US oil sellers who have exported oil to Brazil, China, France, Germany, India, Italy, S Korea, the Netherlands, Singapore, Spain and Switzerland?

    Granted collectively that volume isn’t as much as has gone to Canada but buyers in all those countries competed with Canadian buyers. Just our northern neighbor out bid those other foreign buyers.

  10. Nony on Tue, 10th Jan 2017 6:41 pm 

    Sales to those destinations were limited. The main competition was with US sales. And the result was a depressed price for US light crude on the Gulf Coast in 2013-2015.

    After the export restrictions were removed, differential for EF fell a few bucks. There is no doubt, that export restrictions made us a few bucks and cost the producers a few bucks.

    https://www.mckinseyenergyinsights.com/insights/us-export-ban-lifting-effect-on-crude-pricing.aspx

    Or just ask any of the East Coast Canadian refineries. I’m not lying to you.

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