Top oil exporter Saudi Arabia is expected to raise its official selling prices (OSPs) for Asian buyers in April, tracking stronger physical premiums this month amid the prospect of a demand revival in China.
Saudi Aramco may increase its flagship Arab Light grade by about 40 cents in April to $2.40 a barrel over the Dubai/Oman average, according to five respondents surveyed by Reuters, following strengthened Middle East crude benchmarks.
Saudi unexpectedly hiked March Arab Light prices to Asia, which was its first price increase in six months. A rise for a second consecutive month would indicate firm market confidence in demand growth.
The biggest crude buyer in the East of Suez market, China has been stepping up procurement over the past two months. Its state-backed refiner, Sinopec, scooped up at least 17 cargoes of the United Arab Emirates crude Upper Zakum from the spot market in February alongside several crude cargoes from other Middle Eastern countries.
The survey respondents also expected Saudi to give its heavier grades a bigger price hike in April, with Arab Medium and Arab Heavy increasing about 80 cents and $1 per barrel, respectively.
“The market is betting on China’s resuming demand to underpin the heavier crude prices,” said a Singapore-based respondent. Chinese refiners are able to process medium and heavy sour crude.
PetroChina 601857.SS is preparing to start its 400,000 barrels-per-day refinery in the southern Chinese province Guangdong, which has been designed to refine heavy grades.
However the Brent-Dubai exchange of futures for swaps DUB-EFS-1M, a key indicator of the light-heavy crude spread, narrowed sharply in February, has made lighter Brent-pegged grades more competitive in Asia against Middle Eastern crude.
“Asian refiners would be encouraged to seek more arbitrage cargoes if prices are attractive enough,” said another respondent.
In addition to the competition from Atlantic Basin crudes, Middle Eastern crude is also battling increased flows from Russia as Moscow has diverted more oil, including its Arctic crude, to the Asian market from Europe.
Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 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 kingdom’s monthly OSPs.
Source: Reuters (Reporting by Muyu Xu; Editing by Sonali Paul)