Oil Report

PREVIEW-Saudi Arabia may cut light crude prices to Asia in February

    * Feb Arab Light OSP may fall from 6-year high
    * Most expect Feb Arab Medium crude price to hold steady
    * Market view split for Arab Heavy OSP

    By Florence Tan
    SINGAPORE, Dec 30 (Reuters) - Saudi Arabia, the world's
biggest oil exporter, may cut the prices of its light crude
grades sold to Asia in February on signs of slowing demand ahead
of the region's peak refinery maintenance season, six trade
sources said on Monday.
    The official selling price (OSP) of flagship Arab Light
crude in February could fall by 20-30 cents a barrel, four of
six respondents in a Reuters survey said. State oil company
Saudi Aramco raised the Arab Light OSP to the highest in six
years in January, the fourth month of increases.              
    Aramco may cut the OSP as the price structure for Middle
East crude benchmark Dubai indicated falling crude demand in
February as cargoes loading that month are likely to arrive when
Asian refineries begin shutting for maintenance in March, the
sources said.  
    The average backwardation between the first and third month
cash Dubai price so far this month narrowed by 15 cents from the
previous month, Reuters data showed. In a backwardated market
prompt prices are higher than those in future months.
    The OSPs are also likely to drop as the gross product worth,
which measures the value of a crude in terms of the fuels it
yields after refining, for Saudi oil grades are lower than last
month because of falling refining margins, one of the
respondents said. 
    "Refining margins are under pressure," he said.
    Arab Extra Light may see a bigger price cut in February
after naphtha cracks weakened this month, the sources said.
     However, firm demand for January-loading cargoes and
rebounding fuel oil margins will support the OSPs for heavier
Saudi oil, they said.
    Most of the survey respondents expect the February OSP for
Arab Medium to remain unchanged or drop slightly while the view
was split between an expected price hike and price cut for Arab
    Supplies of these grades could remain tight as demand from
new Chinese refineries will continue to rise in 2020 even as
Saudi Arabia and Kuwait are working on resuming output from
their joint production in the Neutral Zone between them.
    Saudi crude OSPs are usually released around the fifth of
each month, and set the trend for Iranian, Kuwaiti and Iraqi
prices, affecting more than 12 million barrels per day (bpd) of
crude bound for Asia.
    Saudi Aramco sets its crude prices based on recommendations
from customers and after calculating the change in the value of
its oil over the past month, based on yields and product prices.
    Saudi Aramco officials as a matter of policy do not comment
on the kingdom's monthly OSPs.
    Below are expected Saudi prices for February (in $/bbl
against the Oman/Dubai average):
                         JAN       Change         est. FEB OSP  
    Arab Extra Light    +5.80     -0.80/-0.25     +5.00/+5.55  
    Arab Light          +3.70     -0.70/-0.15     +3.00/+3.55  
    Arab Medium         +2.05     -0.20/+0.35     +1.85/+2.40  
    Arab Heavy          -0.15     -0.35/+0.35     -0.50/+0.20
    Source: Reuters, trade     

 (Reporting by Florence Tan; Editing by Christian Schmollinger)