Wednesday, Jan 04, 2012

-- OSP cuts may exceed market expectations

-- Arab Light OSP may be cut by $2.10 on month

-- Price cuts to boost Asian refinery margins

-- Spot demand, premiums may be hit as refiners buy more term

(Adds traders comments and market impact in paragraphs three to seven) 


 
   By Gurdeep Singh 
   Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Saudi Arabian Oil Co., or Saudi Aramco, may announce deeper cuts than expected to its February crude official selling price to Asia, two oil industry sources said Wednesday.

Saudi Aramco executives weren't immediately available for comment.

The oil major may set the Arab Light OSP at $2.05 above the average of Oman and Dubai assessments for February term supply to Asia, down $2.10 from the previous month, the sources, who didn't wish to be named, said.

The potential sharp cuts in Saudi crude prices may boost margins for Asian refiners and increase demand for term crude, thereby reducing appetite for spot barrels and impact their premiums.

Saudi was expected to lower its crude OSPs from record high levels due to a weaker Dubai market structure from a month ago as well as easing margins for Asian refiners that have hurt oil demand.

But the reductions would be significantly deeper than what the market expects, traders said. Saudi Aramco's increase in the January OSP last month was also higher than expected, hurting demand from Asia at a time when refiners faced weak margins.

"That's good news," said a trader with a Chinese refiner, who expected over $1 reduction in the Arab Light price.

Asian refiners have been forced to look for alternative supplies after Middle Eastern producers followed in Saudi's footsteps to sharply raise crude OSPs last month. Flows of crude from North Sea, Russia and West Africa to Asia have risen as regional refiners looked for cheaper crude.

The OSP for Arab Super Light may be cut by $1.80 to $4.10 a barrel above Oman-Dubai assessments. The cut in Super Light OSP may be smaller compared with Arab Light due to an improvement in naphtha cracks from a month ago.

The Arab Extra Light OSP may be cut by $2.10 to $3.55 a barrel above Oman-Dubai, the people said.

Arab Medium OSP may be cut by $2 to 75 cents a barrel above Oman-Dubai, while Arab Heavy crude may be cut to 45 cents a barrel discount to Oman-Dubai, a reduction of $1.80 from January, the people said.

-By Gurdeep Singh, Dow Jones Newswires; 65-6415 4064; gurdeep.singh@dowjones.com

(END) Dow Jones Newswires

04-01-12 1129GMT