Saudis Raise Oil Pricing to Asia as Refining Margins Improve

Saudi Arabia’s Oil Minister Ali al-Naimi

Global crude use is improving, and Saudi Arabia can meet demand from any customer, Oil Minister Ali al-Naimi said at a conference in Riyadh on March 23. Photographer: Vladimir Weiss/Bloomberg

Saudi Arabia, the world’s largest crude exporter, raised pricing for May sales to Asia as refining margins improved for buyers in the country’s biggest market.

State-owned Saudi Arabian Oil Co., known as Saudi Aramco, raised official selling prices for Asia for a second straight month as refiners that buy its crude earned more for turning oil into gasoline and diesel. The country’s oil minister said global demand was improving as lower prices boost use.

“The drive for Aramco to raise prices is the improvement in the refining margin for gasoline and diesel,” Essam al-Marzouk, a Kuwait-based analyst and former vice president for Europe at Kuwait Petroleum International, said by e-mail Sunday. “The Saudis have established good market share in Asia and are less worried by competition from other producers than they used to be early in the year.”

Brent, a global oil benchmark, fell almost 50 percent in the past year amid increasing supply from areas including North America. Saudi output at near-record level is making up for sluggish sales from other OPEC members, as bad weather stunted Iraq’s exports and fighting in Libya kept some fields and ports shut. Iran may add supply if an interim agreement reached last week over its nuclear program leads to a final deal.

Brent for May settlement added as much as $1.95 a barrel, or 3.6 percent, and traded at $56.48 at 2:20 p.m. local time on the London-based ICE Futures Europe exchange.

Refining Margins

Saudi Aramco narrowed the discount for its Arab Light grade to Asia to the least since December, cutting it by 30 cents a barrel to 60 cents less than the regional benchmark, the company said in an e-mailed statement Sunday. Arab Medium will sell at a $2 discount in May, an increase of 20 cents a barrel from April, according to the statement.

The crack spread, or the profit refiners earn for processing benchmark Dubai crude into products, has risen to an average of $15.18 a barrel since the end of February compared with $11.90 a barrel for the first two months of the year, according to data compiled by Bloomberg.

Saudi Aramco cut pricing for May sales of Arab Light crude to the U.S. by 10 cents a barrel to a premium of $1.35 more than the benchmark Argus Sour Crude Index. Arab Medium crude was unchanged at discount of 15 cents. The company trimmed discounts for Arab Light to Northwest Europe and the Mediterranean by 20 cents.

Global Sales

The Organization of Petroleum Exporting Countries decided on Nov. 27 to keep its output target unchanged to maintain its stake of global sales in the face of burgeoning supply from North America, Russia and other areas. Middle Eastern producers had cut pricing to Asia since July to compete with cargoes from Latin America and Africa no longer finding buyers in the U.S.

“Asia now has more options to source crude oil supply,” Sushant Gupta, head of Asia downstream research at consultants Wood Mackenzie Ltd., said March 30 in an e-mailed statement. Saudi market share in Asia will decline by 2020 if it fails to boost exports to the region, according to Wood Mackenzie.

Global crude use is improving, and Saudi Arabia can meet demand from any customer, Oil Minister Ali al-Naimi said at a conference in Riyadh on March 23. The kingdom was pumping at a near-record level of about 10 million barrels a day, he said.

Saudi Arabia must be prepared to defend its position in Asia as Latin American producers supply more to the region, al-Marzouk said.

“Defending market share is still an issue now that we see more crude from Latin American producers moving into Asia,” he said.