June 16, 2008 at 2:33 pm #3578
Asian refiners say “no thanks” to more Saudi oil
Enlarge Photo An oilfield complex is seen at night in the Rub’ al-Khali desert, Saudi Arabia, November…
Mon, Jun 16 03:59 PM
By Maryelle Demongeot
SINGAPORE (Reuters) – Refiners across Asia said on Monday they were not likely to buy more Saudi crude at current prices, highlighting the kingdom’s challenge in attempting to contain soaring markets by promising extra barrels.
The world’s top exporter is set to increase output to 9.7 million barrels per day (bpd) in July, United Nations chief Ban Ki-moon said on Sunday, the first official indication of Saudi Arabia’s second supply boost in as many months.
The extra 250,000 bpd would come on top of the 300,000 bpd it promised to pump this month, most of which appeared to head West as margins for simple refiners in Asia slumped to their deepest losses in over a decade.
“We’ve already made our plans, and barring something out of the ordinary, I don’t foresee making any changes to them,” a source with a Japanese lifter told Reuters.
Another lifter added: “We have no interest in extra barrels.” State oil firm Saudi Aramco has made clear to its Asian customers that they can have more crude if they want it. Just over half the kingdom’s exports go to Asia.
But most Asian lifters declined offers of additional crude for lifting in July during the monthly allocation process that was concluded last week. Only one refiner took up the offer, buying 1 million barrels, an industry source told Reuters.
The issue appears to be about quality.
Saudi Aramco is only offering to sell extra volumes of its medium-heavy Arab Light and Arab Extra Light crudes, while refiners in this region would prefer a mix of its different grades, two sources familiar with the discussions said.
“It’s not an issue of whether they offer extra barrels, but of whether they meet our request for an increase in the share of medium and heavy crudes,” said a trading official with Sinopec, the biggest refiner in Asia and China’s leading player.
“Our plants have become extremely choosy now that losses are getting bigger.”
Saudi Arabia is in the process of bringing online its 500,000-bpd Khursaniyah oilfield, that will produce Arab Light crude.
But price is also playing a part.
Although margins for processing the kingdom’s heavier grades have plummeted, Aramco has also cut the discounts it offers on these grades to their lowest levels this decade, while keeping prices of its lighter grades at relatively high levels.
Refining margins for Middle East benchmark Dubai — similar to Saudi flagship Arab Light — run in a complex plant in Singapore rose above a $9 a barrel profit on Monday, and have averaged more than $7 since March, Reuters data show.
But margins on the same crude run in a simple refinery — of which there are still many in China, India and Southeast Asia — have been negative for the past month in a half.
“We may take more Saudi barrels depending on the terms they offer. They should come out with some attractive terms like price cuts or a change in the formula,” said a source with a state-owned refinery in India.
Though Asian refiners seem reluctant to take extra barrels above their monthly term volumes, several — especially in China and India — have ramped up imports of Middle Eastern crude on a yearly basis, making it less pressing to make monthly adjustments.
Data showed Saudi Arabia raising exports to North Asia in the first quarter by 200,000 bpd from the previous quarter, and by 300,000 bpd versus a year earlier, when it limited output in line with OPEC cuts.
Saudi Arabia is the only member of the Organization of the Petroleum Exporting Countries able to boost output quickly.
OPEC had repeatedly declined consumer nations’ calls for more output, blaming it on speculation rather than a supply shortage, until prices jumped above $139 a barrel, prompting Saudi Arabia to offer to host an unprecedented meeting of producers and consumers to tackle market instability on June 22.
Asian buyers have been receiving mostly full contracted volumes since November after OPEC agreed to raise output in a bid to stem price rises.
(Additional reporting by Angela Moon in Seoul, Nidhi Verma in New Delhi, Aizhu Chen in Beijing and James Topham in Tokyo)
June 16, 2008 at 2:39 pm #6785
Here is update article on Saudi Oil & response from it’s largest group consumers in Asia. Think it highlights the problem going on with crude supply today = dwindling conventional Light crudes but available heavy & non-conventional crudes. It is function of lack of complexity in refining capacity on all “new consumers” in developing countries that have driven prices higher (along with all speculators of course). Asia is taking more than 50% Saudi crude these days and Western consumers have slumped as West Africa has become the transition point for crude supplies moving west. Despite politician claims – most US import supply today comes from Canada, Mexico, Venezuela & North Sea – with Mid East down less 15% source (also why they don’t care what price goes to in US anymore because the additional supplies from more expensive wells or enhanced oil recovery (EOR) only impacts US minority placement of their market today.
Also indicates that most of privitatized or independent Asian refineries have been out this type market for long time since they do not receive government subsidized funding (like China’s Sinopec, PetroChina and others – despite claims “one off” & meeting WTO requirements) so they can hold domestic fuel prices to less than $1/gallon and not wreck farming industries at home. Several countries like Malaysia & Taiwan have removed fuel price caps (unlike China) to increase on products and still are unable purchase crude at these price levels
In fact this Subsidy is also highlighted in another update article = “China turns Gasoline (&Diesel) Importer” @ (http://beta.ph.news.yahoo.com/rtrs/20080616/tbs-china-energy-output-21231dd.html). Hiding behind excuse of Quake damage supply disruption inland refinery, & meeting demands for Olympic games….. the China Government owned refiners like Sinopec & PetroChina have stopped refining crude for incremental demands & are just buying products (because there is higher level of government subsidy available for the fuel imports).
Which is absurd since China has capacity & not only that but the other independent refineries which do not receive the government subsidy for crude or fuel imports have been reduced to historic low utilization rates that track amount of domestic crude available for them process.
These cases highlight how much the government is restraining privitatization of the refining sector, is subsidizing the transportation cost on all of its production & export products which becomes an unfair advantage in trade sector US (wouldn’t our farmers & trucking companies love to have Uncle Sam control their prices at under $1.00/gallon!!). Think how explosive US growth would be industry sector if that was allowed & as incentive they were freed from Environmental investments as are these developing countries!
It is time to put stop to these type unfair trade practices that encourage un-economical price increases, unwarrented job shifts from practices that are in violation of WTO trade status and damage US business. China shouldn’t be allowed to buy crude that isnt economic, import fuel that has to be subsidized for industries to afford or shift independent companies back into bankruptcy mergers with controlled government agencies (ie CNPC petrochemical bottom shopping failed independent refiners for feedstock supply).
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