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Chinese refiners receive 5%-10% Saudi crude oil allocation cuts for Sep


South Korean refiners receive 10% cuts in Sep Saudi crude allocations

Chinese, Japanese refiners also receive 5%-10% Saudi allocation cuts

Reduced Saudi term volumes expected to boost spot sour crude demand

Singapore — Various Northeast Asian end-users saw their crude oil term allocations from Saudi Arabia slashed for September, with two South Korean refining companies receiving around 10% cuts in monthly contract volumes for light and medium sour grades, market sources said Tuesday.

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South Korea's two biggest refiners SK Energy and GS Caltex have received around 10% September allocation cuts from Saudi Aramco, but Hyundai Oilbank is expected to be given full term volume that it had requested for the month, South Korean trade sources with direct knowledge of the matter told S&P Global Platts.

The sources indicated that the reduction in crude allocations for September affected various sour grades including Saudi Arab Extra Light, Arab Light and Arab Medium.

"Luckily, [Hyundai Oilbank] did not see any notable cuts in September Saudi crude allocation because [the company] only nominated [relatively] smaller amount for the month," a company source said.

However, the source added that Aramco seemed to be limiting the volume of its crude exports to Asia, not just the US.

"From what I gather, it wasn't just South Korean companies but the rest of North Asia. Margins are good lately and light sweet crude grades in Europe and Africa are all expensive ... [Middle Eastern crude] sellers have the upper hand this month," the source said.

Chinese companies also saw significant cuts in their September term contract volumes from Aramco, with Unipec -- the trading arm of China's state-run oil giant Sinopec -- receiving cuts of around 5%-10% for Saudi Arab Light and Arab Heavy crude grades, a market source with knowledge of the matter said.

Market sources also indicated that Chinaoil, the trading arm of state-run China National Petroleum Corp., could have received 5% or deeper cuts for medium and heavy grades, but full details could not immediately be verified.

Elsewhere in Northeast Asia, sources said Japanese and Taiwanese refiners could have also received allocation cuts beyond the operational tolerance of 5%.

Two Japanese refining companies received cuts of between 5% and 8% in September allocations for Arab Medium and Arab Heavy crude grades, industry sources in Tokyo with knowledge of the matter said.

Traders also said Taiwan's CPC and Formosa could have received cuts of more than 5% for medium and heavy-end Saudi crude grades, though full details could not immediately be confirmed.

"Asia has been buying too many arbitrage [crude cargoes] this year ... With reduced exports, Asian end-users would have to pay up, I am afraid," said a Northeast Asian crude trader.

Many Asian refiners had until now been keeping a close watch on which country in the region would see fewer Saudi barrels, given the major Middle Eastern producer's determination to speed up the rebalancing of the crude market.

The latest cuts to Northeast Asia would signal that Saudi Arabia is serious about its efforts to reduce OPEC's exports.

In a welcome address given in St. Petersburg on July 24, Saudi energy minister Khalid al-Falih remarked, "exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data and our monitoring mechanism."


Asian traders continued to digest new rounds of official selling prices trickling in Tuesday, while keeping a close eye on refining margins and activity in the other global crude oil markets to gauge how strong the spot Persian Gulf market would develop for October-loading cargoes in the coming days.

Sentiment was broadly upbeat thanks to healthy light and middle distillate product margins, and the latest cuts in Saudi exports to Asia painted an even more bullish picture for the October sour crude trading cycle.

Regional traders noted that many Asian refiners would need to cover their short positions after having received significant cuts in Saudi term allocations.

"This would mean those end-users [that saw sharp allocation cuts] would rush to the spot market to get their hands on whatever sour crude grades for [loading in October] they can get," a Singapore-based trader said.

"[October spot market] will probably see premiums all round ... I reckon Murban, Das Blend, Upper Zakum could all trade above premiums of 10 cents/b [to the grades' respective OSPs]," another Singapore-based trader said.

Reflecting the bullish sentiment, the Dubai market structure strengthened early in the October trading cycle.

Platts assessed front-month cash Dubai at $50.85/b at the close of Asian trade Thursday last week, taking into consideration numerous trades for Dubai cash partials at the price towards the end of the Platts Market on Close assessment process on the day.

This put the spread between October cash Dubai and October Dubai swap at minus 19 cents/b for the day, the strongest the spread has been since March 15, when it was at minus 16 cents/b.

The spread averaged minus 31 cents/b so far this month, compared to July's average of minus 55 cents/b.

--Gawoon Philip Vahn,
--Takeo Kumagai,
--Edited by Irene Tang,