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Saudi Arabia may reduce the official selling prices for most of its oil grades for Asian buyers next month, Reuters has reported, citing sources from the refining industry.
Based on a poll conducted among six of these sources, Reuters expects the Saudis to reduce prices by between $0.30 and $0.50 per barrel in December, which would be in line with the movement of the Dubai benchmark price last month, the publication noted.
A price cut would not do the Saudis a favor with regard to international prices, however. It would signal a perception that demand is weak enough to necessitate price cuts, which would in turn deepen the bullish sentiment among traders, possibly dragging prices even lower.
According to the source surveyed, the prices of some heavier grades may see smaller price cuts thanks to strong demand for high-sulfur fuel oil from the shipping industry. That demand has pushed refining margins for the heavier fuel up, feeding refiners’ appetite for the feedstock.
Based on the poll, Reuters has forecast the Saudi December price discounts at between $0.27 and $0.50 per barrel of Arab Extra Light’ at between $0.30 and $0.50 per barrel of Arab Light; and by up to $0.40 per barrel of Arab Medium and Arab Heavy.
Bloomberg reported earlier this week that demand for high-sulfur fuel oil was on the rise as ships made longer trips to avoid Middle Eastern waters amid the hostilities between Israel and its neighbors. Market data from the past few week showed that the discount between high-sulfur fuel oil and the Singapore crude benchmark was shrinking, indicating stronger demand for the fuel.
Demand for the fuel has remained strong even after the tightening of International maritime Organization fuel standards because these standards allowed shipowners to install so-called scrubbers that remove the sulfur, which is a pollutant, from the fuel as it burns.
By Charles Kennedy for Oilprice.com
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