Singapore — Customers of Saudi Arabian crude will receive their allotted May volumes in full, signalling the world's largest oil exporter is unlikely to reduce volumes to its Asian refiners despite a production cut agreement earlier this month, industry sources told S&P Global Platts Friday.
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The OPEC+, a coalition of OPEC and other oil producers, on Sunday agreed to whittle down production by 9.7 million b/d over May and June after oil prices plunged to near 18-year lows.
The production cut raised questions over whether term customers of Middle East producers would see reduced figures when nominated volumes are confirmed this month.
According to several refinery sources, May crude allocations from Saudi Arabia are largely finalized, with several refiners reporting that state oil giant Aramco has confirmed delivery of the crude volumes they had requested for May nominations.
At least one Japanese refiner confirmed there was no allocation supply cut for May loadings as requested, a company source said. Refinery sources in Singapore, China and Taiwan reported similar statements to Platts on Friday.
Low demand for May volumes
Market sources say Aramco is unlikely to reduce volumes to its Asian customers as part of its production cut quota, after cutting its official selling prices to ensure competitiveness and market share in the East.
"Haven't heard any cuts so far for those receiving Saudi crude allocations so far," said a crude trader with a China-based refining operation.
"No cuts for term lifters, they wouldn't cut Asian customers this month," he added.
Additionally, reduced demand and heavy cutbacks on refinery throughput across Asia would likely see buyers request volumes on the lower end of their monthly contractual tolerance, said traders.
"There are a lot of refineries cutting runs and so the buyers themselves may ask for less volumes this month," the first source said.
"For us, we will be asking for lesser than normal volume as we have run cuts as well. And we will be buying less on the spot market too," they added.
"For now there is no reason to take additional barrels," said a source with a Japanese refiner.
Prior to sending confirmations for May allocations, a source with Aramco confirmed they were receiving lower-than-typical volume nominations for May-loading crude this month.
"No confirmation yet, but demand is going to be much less," the source had said.
In April, several refiners in north Asia had declined offers from Middle East producers for additional crude volumes to their allocated April term barrels.
Saudi Aramco, at the time, had confirmed it had offered customers in Asia the option of nominating additional volumes for April.
Reselling excess crude
In India particularly, refiners with term contracts are not only requesting lower volumes, but have also put several previously purchased cargoes on sale on the spot market amid run cuts, said traders.
"ADNOC, SOMO had April overhang, and Reliance were offering [April cargoes], they would have had to sell out at huge losses," said a trader.
Several Indian refineries, including IOC, BPCL and HPCL, reduced run rates and said they are not making any large purchase commitments because of weak demand.
Indian Oil Corp. the country's largest state-run refiner, has reduced crude throughput by 50% at its nine refineries to combat a slump in demand for petroleum products due to the lockdown to combat the coronavirus pandemic, company officials said this week.
Chinese refinery-linked sources said they had not requested incremental volumes from Saudi Aramco this month as the company had limited barrels of Arab Medium and Heavy crude, but did have excess Arab Light and Extra Light, which the refiners did not want to purchase.
Additionally, domestic storage availability in the country was now limited, they said.
Plenty of unsold volume from previous cycles was also available to buyers at attractive prices, said market participants.
"In terms of re-offering, what I can see is people trying to re-optimize , for June arrivals i.e. May loaders," the source with the Japanese refiner said.
"Margins are quite poor and in the event they do improve, there are ample barrels around in the market. Everyone apart from China is cutting runs so why would anyone ask for additional allocations," he added.
Still, some refineries may use the opportunity to maximize crude purchases, conditional on their production plans as well as storage availability, they told Platts.
A Japanese refiner has requested for additional barrels from its key crude suppliers Saudi Arabia and Abu Dhabi for loadings in May, a company source told Platts.
The refiner is now getting additional 500,000 barrels of Saudi Extra Light crude for May and is requesting another 500,000 barrels of Abu Dhabi Murban crude for loading in May. They did not take any additional barrels from the Middle Eastern crude suppliers in April, the source said.
Monthly term allocations from other producers, such as Iraq's SOMO, Kuwait Petroleum and UAE's ADNOC are still underway, market sources told Platts on Friday.
"SOMO allocations process just started last night so will only be finalized next week," said a Basrah crude trader.