Saudi Arabia raised official selling prices of all its crudes to Asia in December versus November
Middle East crude prices to Asia, led by Saudi Arabia, have jumped to multi-month highs, rebounding from around 20-month lows three months ago, spurred by a strong naphtha market and winter demand, traders said.
Top oil exporter Saudi Arabia raised prices of all its crudes to Asia in December versus November, especially for lighter grades, with Arab Extra Light jumping to the highest since August 2009, boosting sentiment in the Gulf crude market on Thursday.
Strong crack spreads for naphtha and middle distillates, coupled with expected peak demand season for heating oil, have boosted demand for all grades of crude in recent months.
The November/December Dubai intermonth spread strengthened to a discount of 10 cents on Thursday, and some traders said if the strength persisted, they did not rule out the possibility that the market would make the rare flip into backwardation, signalling very strong prompt demand.
Just a month ago, the intermonth spread was in a discount of around 40 cents, and in early August it was in a deep contango of 80-90 cents, Reuters data showed.
"The bullish sentiment is still there. Refiners are building up stocks for winter and refining margins remain good," said a trader with a Northeast Asia refiner.
Saudi Aramco raised the price of Arab Extra Light in December by 95 cents to a premium of $1.80 a barrel to Oman/Dubai average, exceeding traders' forecast for a 30-50 cents rise versus November.
It raised the price of Arab Light in December by 40 cents to a premium of 35 cents to Oman/Dubai average, the highest in 11 months. Arab Medium was raised to a six-month high while Arab Heavy price was raised to a four-month high.
The hikes will trigger similar rise in prices of Iranian, Iraqi and Kuwaiti crudes, affecting some 7 million barrels per day (bpd) of crude bound for Asia.
Complex processing margins for Dubai in Singapore were at an average of $5.16 over the last 15 days, Reuters data show. Over the last year, the average margin has been around $4.01 per barrel.
Simple refineries in Singapore showed a profit of $1.28 a barrel over the past 15 days, up from an average of 71 cents over the past year.
The strength of the Middle East market prompted Saudi Arabia to shift its preferred price up a notch on Monday by saying $70-$90 a barrel was an acceptable range for consumers. Until this week, Saudi Oil Minister Ali aAl Naimi had said the ideal range for producers and consumers was $70-$80, either side of the $75 identified by the kingdom in November 2008.
His remarks helped to drive up benchmark US crude, which sustained its climb for a fourth-straight day on Thursday to touch a six-month high near $86, as the dollar weakened after the US Federal Reserve unveiled a plan to buy debt and pump more money into the economy.
Earlier this week, Abu Dhabi National Oil Company (ADNOC) raised the October retroactive selling price of its benchmark Murban crude by $5.60 per barrel to $81.50, the highest in six months and above traders' expectations.
The high OSPs are not expected to dampen buyers' appetite and price differentials. Traders said Abu Dhabi flagship Murban crude for January loading would start trading at premiums to the new OSP, and even at double-digit premiums.
"After Saudi Arabia raised the Arab Extra Light prices by so much, Murban looked attractive," said a second trader.
Oman value on the Dubai Mercantile Exchange (DME) rose to around 25-cent discount to Dubai quotes on Thursday, improved from a deep discount of around $1.50 in early August.
Other Gulf grades will also start trading next week at strong differentials, traders said.
"Demand is there, supply is tight." said the second trader.
Qatar also raised its October retroactive official selling price (OSP) for Qatar Marine crude to $79.55 a barrel, up $5.40 from September.
The October price was set at a discount of 67 cents a barrel to the average price for the month of benchmark Dubai crude, narrower than a discount of 97 cents for September.