Saudis Raise Asia Crude Pricing as U.S. Puts Curbs on Iran

(Bloomberg) -- Saudi Arabia raised pricing for the Medium and Heavy crudes it sells to Asia, a sign that OPEC's biggest producer sees robust demand for the grades as it boosts output to offset the impact of energy sanctions on Iran.

State-owned Saudi Aramco increased its official selling price for December sales of Medium crude to Asia by 20 cents, to 70 cents a barrel more than the Middle East benchmark, the company said Monday in an emailed statement. That puts the Medium grade at its highest premium since January 2014. Aramco raised pricing for Heavy crude by 40 cents, narrowing a discount to the benchmark to 25 cents a barrel. Both grades are similar to Iranian crude.

The U.S. today reimposed sanctions on Iran's energy industry and other parts of its economy, seeking to drive the Persian Gulf state's exports out of the market. Saudi Arabia is a linchpin in U.S. President Donald Trump's effort to slash Iran's crude shipments, with the kingdom pledging to make up for any shortfalls in global supply.

Aramco's Medium and Heavy crudes “are the best matches for the Iranian barrels that are being taken out of the market,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. “There's tightness of the heavier grades because that's where the cuts have been, and demand is strong for those crudes.”

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The higher Asia pricing for Medium and Heavy crudes suggests that the company, known formally as Saudi Arabian Oil Co., expects the market for those grades to tighten. The Brent-Dubai spread, a measure of the price difference between light and heavier crudes, is near its narrowest in a year, according to data from PVM Oil Associates Ltd. Middle Eastern oils, including the Dubai benchmark, are generally heavier than Brent and other European crudes, making them more difficult to refine.

Aramco cut monthly pricing for Arab Light crude to Asia by 10 cents to $1.60 a barrel more than the benchmark. Four traders in a Bloomberg survey had forecast a 20-cent reduction in the grade.

The company raised pricing on all of its grades to the U.S. and to Northwest Europe. It cut most crudes to the Mediterranean region, increasing pricing only for its Heavy grade.

OPEC Output

The Organization of Petroleum Exporting Countries and its allies are in a “produce as much you can mode” to meet demand and replace any looming shortages, Saudi Energy Minister Khalid Al-Falih said last month at a conference in Riyadh. The country pumped 10.68 million barrels a day in October, according to data compiled by Bloomberg, and it could soon be pumping 11 million if markets need it, Al-Falih said in an interview with Russia's TASS news agency published Oct. 22.

Saudi crude pricing to Asia, the biggest market for Middle East crude, is widely watched by traders and refiners as a barometer for demand. Saudi Arabia is the first producer each month to set forward pricing levels for cargoes to be loaded the following month, and fellow producers like Iraq and Iran follow the Saudi lead in setting their prices.

Companies in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf's state oil producers price their crude at a premium or discount to a benchmark.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley, Helen Robertson

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