Top oil exporter Saudi Arabia may raise prices of light crude grades to Asia in December, supported by a rebound in distillate margins and spot premiums for Middle Eastern oil this month, trade sources said on Friday.
After cutting prices for two straight months, state oil giant Saudi Aramco may raise the official selling price (OSP) for flagship Arab Light crude by 30 cents to 90 cents in December, six respondents said in a Reuters survey.
The price hike comes as refiners are cranking up output to meet higher demand as countries ease Covid-19 movement restrictions while oil consumption in power sector is rising amid a global crunch in coal and natural gas.
However, the wide range of values in the survey indicate uncertainty over how much Saudi Aramco will mark prices based on its pricing formula, they said, as the producer has cut prices more than expected in past months to entice buying.
"They can afford to move back towards model-driven OSPs," one respondent said.
"Previously their OSPs were way too high. But after the great reset, Saudi (crude) value looks more in line with spot (levels) again."
The monthly change in first and third month price spread for Middle East benchmark Dubai typically guides how much Saudi would raise or cut Arab Light's OSP. This month, the spread widened by an average of 86 cents a barrel in backwardation. In backwardation, prompt prices are higher than those in future months, indicating tight supply.
For other grades, four respondents expect Arab Heavy's OSP to stay flat or rise, tracking strong spot premiums for similar quality Iraqi crude, although two others said a drop in fuel oil margins may lead to price cuts.
Arab Medium's OSP may also rise after Banoco Arab Medium crude's spot differential flipped to a premium this month, another respondent said.
Saudi crude OSPs set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day (bpd) of crude bound for Asia.
Saudi Aramco is likely to release monthly prices after a meeting between the Organization of the Petroleum Exporting Countries and their allies on Nov. 4.
Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.
Below are expected Saudi prices for December (in $/bbl against the Oman/Dubai average): NOV Change est.DEC OSP
Arab Extra Light +1.80 +0.25/+1.15 +2.05/+2.95
Arab Light +1.30 +0.30/+0.90 +1.60/+2.20
Arab Medium +1.05 -0.10/+0.80 +0.95/+1.85
Arab Heavy -0.10 -1.00/+0.70 -1.10/+0.60