Saudis Hike Light Crude Prices, Driven by High IMO 2020 Demand
Saudi Arabia has priced its lighter crude at the widest premium to heavier oil in almost two years as new rules mandating cleaner shipping fuels drive demand for less-sulfurous grades.
Arab Extra Light’s premium over Arab Heavy ballooned to $4.65/bbl for December sales to Asia, according to data compiled by Bloomberg. That’s the highest since March 2018 and $2 more than the previous month. The September spread was as narrow as $1.05.
Lighter oil is highly sought after at the moment as it can be more easily blended into less-pollutive fuels that will be compliant with the International Maritime Organization standards that take effect Jan. 1. The rules, known as IMO 2020, have also boosted prices of other less-sulfurous grades such as Qatar Land, Russia’s Sokol and Australia’s Pyrenees.
“The transition to the world of low-sulfur fuels is already underway,” said Senthil Kumaran, a senior oily analyst at FGE in Singapore. “Saudi Arabia’s pricing is a reflection of the estimated uptake in consumption of these lighter crudes.”
A couple of other developments have also allowed the world’s top oil exporter to command higher prices for its lighter crudes. A recovery in profits from making naphtha from Dubai oil in Singapore has also aided demand as less-sulfurous oil is more suitable for production of the plastics feedstock. Meanwhile, the September attacks on the kingdom’s energy infrastructure disproportionately reduced supply of the more sought-after varieties.
Saudi Aramco raised December pricing for sales of its light oil grades to Asia to their highest level since 2014 on Monday, just a day after it announced it would go ahead with its long-awaited initial public offering. The shipments will arrive in the region just as the IMO 2020 rules take effect.