The Reduce of Oil Supply to Asia to 9%

Saudi Aramco, the world's largest state oil company, will cut crude oil supply to Asian refiners in April by an average 9 percent below contracted volumes, more than the 7 percent reduction in March exports.

Saudi Aramco will mainly lower Arab Heavy crude oil exports, said refinery officials who received notices from the company. They asked not to be identified because of confidentiality agreements with the Dhahran, Saudi Arabia-based oil producer.

Customers will receive less crude oil as Saudi Aramco complies with Organization of Petroleum Exporting Countries' production quotas agreed last year. The oil producer is cutting exports of its heavy crude to Asia after demand fell as the refining profit to process that grade declined. OPEC meets on March 15 at its Vienna headquarters to discuss second-quarter output.

``It's operational rather than trying to push the market price up,'' said Larry Grace, a Hong Kong-based energy analyst at Kim Eng Securities Ltd. ``The heavy crude being taken further off than the light crude is usually connected to the regional crack spreads,'' or refining profit.

Refineries in Asia typically close from April to June for repairs. Japan will see a peak of 26 percent of its capacity closed in May and South Korea will have 19 percent shut, mainly during the second half of June and the first half of July.

Crude oil for April delivery fell as much as 78 cents, or 1.3 percent, to $59.27 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $59.61 at 12:39 p.m. in Singapore.

Arab Heavy

Saudi Aramco will cut exports of Arab Heavy crude by as much as 20 percent to Japan, 9 percent to South Korea and 15 percent to China, refinery officials said. A Taiwanese refiner will receive a 10 percent cut in Arab Heavy supply.

Saudi Aramco will maintain full supplies of some of its lighter varieties such as Arab Extra Light to a South Korean refiner, while cutting by 4 percent its Arab Light crude to a Japanese refiner.

Asia is the biggest buyer of Saudi Arabia's crude oil importing about 50 percent of total exports of more than 7 million barrels a day.

Saudi Aramco on March 5 raised prices of two of its most expensive crude oil varieties for export in April to Asia as the profit to process them into gasoline and naphtha gained. The refining profit to process Dubai crude, an Asian benchmark, into gasoline has almost doubled from a month ago, according to data compiled by Bloomberg.

Refining Margin

The so-called Singapore complex refining margin, the benchmark for Asia, averaged $7.17 a barrel from Feb. 2 to Feb. 23 from $5.43 a year ago, Merrill Lynch & Co. said.

Saudi Aramco increased the premium for its Arab Super Light crude price by $1.30 to $7.50 a barrel, the highest in six months, and Extra Light by 20 cents to $3.20 a barrel. These crudes yield more gasoline and naphtha after processing.

The company cut the price of its Arab Light grade by 10 cents to 15 cents a barrel, Arab Medium by 20 cents to a discount of $2.45 a barrel and Arab Heavy crude by 45 cents to minus $5.05 a barrel. Arab Heavy, Arab Medium and Arab Light crudes yield more fuel oil than lighter varieties.

Saudi Aramco's crude oil prices for its Asian customers are expressed as a premium or discount to the average price of Oman and Dubai grades, the two Middle East benchmarks used by refiners and traders in Asia.

Fuel oil in Asia is trading at a bigger discount to Dubai crude as supplies of the product increased. Fuel oil's discount fell to minus $12.97 a barrel on March 9 from $8.79 a barrel a month ago, Bloomberg data showed.

The differential between oil products and crude, known as the crack, is a measure of profit or loss from processing crude oil.

source:www.bloomberg.com