Saudi Arabia is expected to raise or hold steady the differentials for November official selling prices (OSPs) of heavy crudes due to firm fuel oil cracks but may cut levels for lighter grades on slow distillate demand.

Seven out of eight refiners and traders polled said differentials for
the Arab Medium and Arab Heavy grades would rise or stay unchanged from
the October OSPs, as Asia’s fuel oil cracks scaled to five-year highs
last month.

“The spot market was so strong, especially in the first half of
September, together with strong fuel oil cracks, prices of heavier
grades could rise by 20 to 30 cents for November,” said a source at a
refiner.

Asia’s fuel oil market has been on a roll, with its crack spreads
jumping to discount of $1.62 a barrel to Dubai swaps – the strongest
since October 10, 2004.

Fuel oil’s supply shortage is expected to last until the end of the
year as long as global refinery runs are kept low due to poor
distillate cracks.

Saudi lighter grades, however, are expected to see downward pressure,
as the naphtha market weakened from recent highs and the October gas
oil crack slumped to a two-month low of around $6.40 a barrel last
week.

“Logically, you would expect some softening in the lighter OSPs,” said one trader.

Naphtha’s crack spreads have weakened from levels above $100 a tonne recently to around $85 a tonne versus Brent crude.

Distillates demand was slack amid a global glut despite the coming
winter and the new prompt-month November crack was valued at a low
$7.19 a barrel above Dubai swaps on Thursday.

The end of the driving season in the US – the world’s top oil user -
has led to lower petrol consumption, compounding the glut in Asia,
traders said, forcing refiners such as Taiwan’s CPC Corp to shut a
25,000 barrels per day gasoline unit for an indefinite period due to
anaemic margins.

Saudi Arabia usually releases its crude OSPs around the fifth of each
month, and set the trend for Iranian, Kuwaiti and Iraqi prices,
affecting some 7 million barrels per day (bpd) of crude bound for Asia.

Source: Reuters

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