Saudi Aramco on Wednesday slashed the official selling prices for its Asia-bound crude lifting in November for the fourth month in row, as Asian refiners have found greater supply options.
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Saudi Aramco's cuts were deepest to light grades. Aramco cut its Extra Light price by $1.20 to a 20 cents/barrel premium to the average of Oman and Dubai (formula), and its Super Light price by $1.20 to a $1.15/b premium to the formula. Aramco cut its Arab Light price by $1 to a $1.05/b discount to the formula.
Aramco cut its Arab Medium price by 70 cents to a $2.55/b discount to the formula and its Arab Heavy price by 60 cents to a $4.90/b discount to the formula. (See story, 1710 GMT)
Aramco has been cutting its prices to Asia steadily for four months, five months in the case of Super Light. Aramco's October Extra Light price reflects a drop of $3.80/b from its July price, and Aramco's Super Light price reflects a drop of $5.30/b from its June price.
As the US has backed out light sweet crude imports because of growing North American crude production, more crudes have become available to Asian refiners at lower prices. Aramco has had to compete for market share by cutting prices.
US refiners, for instance, imported no Nigerian crude in July, according to the most recent US Energy Information Administration data. But Asia's four largest oil consumers -- China, India, Japan and South Korea -- have collectively bought around 42% more Nigerian crude so far this year compared with 2013, according to an analysis of import data monitored by Platts.
Crude traders this week were expecting the price cuts, pointing to persistently weak demand for Middle Eastern sour crudes. (See story 0637 GMT)
Traders pointed to a deeper Dubai contango in September. The front/third month Dubai spread averaged minus $1.23/b in September, from minus 50 cents/b in August and plus 72 cents/b in July.
The spread is a gauge of relative strength in the forward market for Middle Eastern sour crude grades and is understood to play a role in setting the OSP differential for Arab Light.
As spot crude prices have weakened, Singapore refining margins have improved. The Murban cracking margin, for instance, averaged $1.32/b in September, up from minus $1.86/b in August, as the spot Murban price fell $5.40 to average $98.93/b.
The Arab Light cracking margin averaged minus 8 cents/b in September, up from minus $3.29/b in August. However, the Arab Light margin could increase as lower OSPs kick in for October.
Based on Aramco's October OSPs, the proxy spot Arab Light price for Asia was calculated by Platts at $93.65/b Wednesday, down from $97.20/b Tuesday.
ANALYSTS LOOK FOR CRUDE SUPPLY CUTS
With North American production growing, analysts have speculated that crude supply will need to be cut going forward, and that Saudi Arabia could play a key role in cutting.
Credit Suisse top oil economist Jan Stuart said Tuesday that so far the country has showed no signs they are willing to cut.
"Any indication will have to come from their actions," he said, noting the market will need to keep a close eye on Saudi exports, rather than production, as a swath of new refining capacity will likely eat into domestic production.
Nearly 800,000 b/d of Saudi refinery capacity is expected online in the next year in the form of the 400,000 b/d Yasref refinery in Yanbu, in addition to the 400,000 b/d Satorp refinery in Jubail.
"Those who think Saudi Arabia can stabilize the market alone seem misguided," energy economist Philip K. Verleger said in his Petroleum Economics Monthly published Tuesday. The economic slowdown, "the decline in global demand, and the surge in crude production seem to require" a large cut in production, he said.
But that would mean Saudi exports "must decline from around 6.5 million b/d to less than 2 million b/d if Saudi Arabia acts alone," Verleger said.
"Recent statements by Saudi officials suggest they understand the problem. The reduced price differentials announced in September underscored their words, making it clear that the kingdom has no intention of acting alone," he said.