Saudi oil premium at 15-year low as fuel profits collapse

SINGAPORE: Saudi Arabia’s crude pricing in the world’s biggest oil market is reflecting tumbling profits from making cleaner fuels in Asia.

State-run Saudi Aramco slashed the premium of its Extra Light grade to its Heavy crude to the lowest since 2003, data compiled by Bloomberg show. When lighter varieties of oil are refined, they typically yield more of relatively clean products such as gasoline and petrochemical ingredient naphtha. The market for such fuels has been mired in a glut over the past two months.

While the world’s biggest oil exporter cut pricing on all its grades for January sales to Asia in a bid to take back market share lost to the likes of Russia and the United States, the significant reduction in the premium for its lighter varieties shows the kingdom is probably taking into account the shrinking margins in the region for cleaner fuels as well as focusing on tackling competition from other sellers.

“Gasoline and naphtha are dying and margins still haven’t reached their worst,” Fereidun Fesharaki, chairman of industry consultant FGE, said in an interview in Singapore.

“In Asia, Saudi prices are based on purely product yields and the competition they see from the outside.”

Oil refiners in Asia are fetching better returns by producing dirty fuel oil than from cleaner naphtha for the first time in more than a year, data compiled by Bloomberg show. Concern over falling petrochemical consumption is said to be dragging down prices of the so-called light distillate, while stockpiles swell in the regional trading hub in Singapore.

In China -- one of the key markets where Saudi Arabia is seeking to reassert its crude dominance – refineries are doubling down on processing to boost diesel output aimed at heating millions of homes this winter, and therefore contributing to an increase in supplies of other products such as gasoline and naphtha.

The nation has also raised its total fuel-export quotas by 12% for 2018 in a move that would allow more seaborne sales.