September 3, 2018 / 8:18 AM / 20 days ago

Saudi Arabia may maintain Oct light crude prices for Asia cargoes

SINGAPORE (Reuters) - Top oil exporter Saudi Arabia is expected to keep prices for the light crude grades it sells to Asia largely unchanged in October from the previous month to keep its oil competitive against other suppliers, several trade sources said on Monday.

Saudi Arabia has cut the prices for Arab Light and Arab Extra Light to Asia over the past two months as it fends off competition from other Middle East oil suppliers, Europe and the United States. [OSP/O]

Since June, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producer Russia have increased production to make up for falling output from Venezuela, Libya and ahead of U.S. sanctions on Iran.

The rise in exports from the Middle East and Russia, plus arbitrage flows from Europe and the United States, has kept Asia well-supplied, especially in light grades.

“Calculations based on the Saudi price formula point to a small increase but because there are so many light grades coming from other regions, we expect Saudi to maintain or cut its prices to stay competitive,” a source at a North Asian refiner said.

Half of the six respondents in a Reuters survey said they expect the October official selling price (OSP) for flagship Arab Light crude to rise by 5 cents to 30 cents from the previous month while the other half expect prices to fall by up to 30 cents.

All except one respondent expect Saudi Arabia to cut Arab Heavy crude’s OSP in October to track a 72 percent drop in fuel oil margins last month but their view on Arab Medium’s OSP was mixed.

“Demand for Middle East crude is improving,” a second source at a North Asian refiner said, adding that he expects Saudi to raise prices by 5 cents to 10 cents a barrel for all grades.

Asia’s demand for medium-sour grades was strong last month partly as South Korea and Japan have cut Iranian crude imports ahead of U.S. sanctions in November, the trade sources said.

The October OSPs will also mark the first change in Saudi’s crude price benchmarks since the mid-1980s.

Saudi Aramco’s OSPs for October will be based on the average settlement prices for the DME December Oman contract and the December Dubai cash price assessed by Platts, both of which are set in October.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.

State oil giant 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.

Reporting by Florence Tan; Editing by Christian Schmollinger

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