Saudi Aramco Raises Most Western Prices And Cuts Most Asian Prices For August

VOL. XLV

No 27

8-July-2002

SAUDI ARABIA

Saudi Aramco Raises Most Western Prices And Cuts Most Asian Prices For August

Saudi Aramco announced to customers on 3 July its contract prices for August crude deliveries, raising the prices for most grades to western markets and reducing most prices for grades destined eastwards. As usual, Saudi Aramco based its price formulas on the performance of regional spot crude and products markets in the month preceding the pricing announcement. MEES soundings indicate that the comparatively small changes from the July formulas were in line with customer expectations, given the relatively steady crude prices in June spot market trading, and continued weakness of product markets except in the US.

For August deliveries to the US, where WTI crude is used as the pricing reference, Saudi Aramco raised the prices of Arab Extra Light by 25 cents/B, Arab Light by 15 cents/B and Arab Medium by 10 cents/B, while leaving the Arab Heavy price unchanged. The August pricing effectively takes back some of the price cuts for July, when increased availability of Venezuelan and Iraqi crudes was a bearish force on spot prices. Since then, Iraq’s export program, hampered by a dispute with the UN over retroactive pricing of the oil-for-food program exports, has continued to stutter. While prices for competing crudes in the Gulf of Mexico market have not changed much in June trading, there has been a lift for differentials because of improved refining margins in the Gulf area and increased demand for gasoline as the summer driving season gathers pace.

For August deliveries to Europe, where the IPE’s Brent Weighted Average (BWAVE) quoted value is used as the reference, Saudi Aramco raised the price of Arab Extra Light by 35 cents/B, raised Arab Light by 25 cents/B, raised Arab Medium by 10 cents/B, and reduced Arab Heavy by 5 cents/B. Once again, the main factor behind the Saudi pricing decision was the performance of Russia’s Urals crude on spot markets. Urals is used as a guide for pricing sour crudes in the Mediterranean market in particular, and June saw the grade strengthen from Dated Brent minus $1.40/B to Dated Brent minus $1/B. Similarly, spot prices for Kirkuk delivered into the Mediterranean strengthened from Dated Brent minus $2.20/B to Dated Brent minus $1.80/B. Factored against the sour crude strength was the continuation of poor refining margins in Europe.

For August deliveries to Asia, where the average of the Oman and Dubai prices is used as the reference, Saudi Aramco raised the price of Arab Super Light by 10 cents/B, left the Arab Extra Light price unchanged, and reduced the prices of Arab Light, Arab Medium and Arab Heavy by 5 cents/B each. During June, spot market prices for Oman crude fell from a 2-3 cents/B premium on the official selling prices to a 2-3 cents/B discount. The August pricing reflects both weakening demand for Middle East crudes on the Asian spot market with reduced netbacks on the Singapore products market, and the widening of the light-heavy differential was seen as a way of improving the economics of heavy grades at a time of continuing weak demand.

The formulas for August 2002 and the previous 12 months for deliveries to the US, Europe and the Far East – on an FOB Saudi Arabia basis, 50 days after B/L for the US, 40 days after B/L for NW Europe and B/L date for the Far East – are as follows ($/B):

US (Price Reference WTI)

		2002									2001
	Aug		Jul	Jun	May	Apr	Mar	Feb	Jan	Dec		Nov	Oct	Sep	Aug
Arab Light	-3.20		-3.35	-2.80	-2.95	-3.15	-2.95	-3.30	-4.05	-4.75		-4.75	-5.10	-4.80	-4.30
Arab Medium	-3.80		-3.90	-3.35	-3.60	-3.70	-3.55	-4.05	-4.85	-5.75		-5.95	-6.40	-6.05	-5.35
Arab Heavy	-4.50		-4.50	-4.30	-4.50	-4.75	-4.55	-5.05	-5.65	-6.65		-6.30	-6.80	-7.40	-7.00
Arab Extra Light	-2.55		-2.80	-2.10	-2.15	-2.30	-2.05	-2.25	-2.75	-3.05		-3.05	-3.25	-3.35	-2.75

Europe (Price Reference Brent Weighted Average)

		2002																	2001
	Aug		Jul		Jun		May		Apr		Mar		Feb		Jan		Dec				Nov	Oct		Sep		Aug
Arab Light	-2.30			-2.55		-2.65		-2.65		-2.65		-2.75		-1.75		-2.05		-2.15		-2.55			-2.25		-2.45		-3.35
Arab Medium	-2.80			-2.90		-3.05		-3.20		-2.90		-3.10		-2.20		-2.40		-2.75		-3.10			-3.00		-3.20		-4.20
Arab Heavy	-3.25			-3.20		-3.40		-3.65		-3.15		-3.45		-2.60		-2.70		-3.20		-3.55			-3.55		-3.65		-4.75
Arab Extra Light	-1.40			-1.75		-1.80		-1.65		-1.90		-1.90		-0.80		-1.20		-0.95		-1.15			-0.65		-0.95		-1.75

Far East (Price Reference Oman/Dubai)

2002

2001

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Arab Light

+0.40

+0.45

+0.55

+0.40

+0.30

+0.45

+0.35

+0.25

+0.20

+0.30

+0.50

Arab Medium

+0.10

+0.15

+0.05

-0.15

-0.10

+0.00

-0.10

-0.20

-0.10

-0.20

-0.30

Arab Heavy

-0.25

-0.20

-0.35

-0.60

-0.50

-0.40

-0.50

-0.65

-0.55

-0.80

-1.10

Arab Extra Light

+0.75

+0.95

+0.85

+0.70

+0.85

+0.75

+0.55

+0.75

+1.15

+1.65

Arab Super Light

+1.05

+0.95

+1.25

+1.50

+1.20

+1.30

+1.05

+1.15

+1.55

+1.95

+2.85

The formula also includes a freight adjustment factor. Base rates for deliveries for West of Suez destinations are: for the US $7.36/long ton and for NWE/Med $7.39/long ton. AFRA freights (250,000-319,000 dwt) above these rates are subtracted from the FOB prices, while freights below these rates are added to the FOB prices. There is no freight adjustment for shipments to the Far East. The following table shows the adjustment factors for August 2002 and the previous 12 months for Saudi crude deliveries out of the Caribbean ($/B):

US (Price Reference WTI)

		2002									2001
	Aug		Jul	Jun	May	Apr	Mar	Feb	Jan	Dec			Nov	Oct	Sep	Aug
St Lucia
Arab Light	-2.25		-2.40	-1.85	-2.00	-2.20	-2.00	-2.35	-3.10	-3.80		-3.80		-4.15	-3.85	-3.35
Arab Medium	-2.85		-2.95	-2.40	-2.65	-2.75	-2.60	-3.10	-3.90	-4.80		-5.00		-5.45	-5.10	-4.40
Arab Heavy	-3.55		-3.55	-3.35	-3.55	-3.80	-3.60	-4.10	-4.70	-5.70		-5.35		-5.85	-6.45	-6.05
St Eustatius
Arab Light	-2.20		-2.35	-1.80	-1.95	-2.15	-1.95	-2.30	-3.05	-3.75		-3.75