COLUMN-Surprise Saudi oil price hike for Asia may be last for months: Clyde Russell
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 8 (Reuters) - Saudi Aramco probably won few friends among Asian refiners when it defied expectations and raised the official selling prices of its crude oil grades for February cargoes.
The increase was the third in a row of increases that have contributed to a cut in refining margins in region, which takes about two-thirds of the crude shipped by Aramco, the world's biggest oil exporter.
If there is a silver lining to the cloud of higher prices for refiners, it's that OSPs could be lowered from March, assuming that current market trends continue.
Aramco increased the premium on its main Arab Light grade to $3.45 a barrel over regional benchmark Oman/Dubai crude for February, up from $3.30 in January.
The heavy grade was raised to a discount of $1.10 a barrel in February from January's bigger $1.40 discount.
Both price increases were outside the expectations of traders surveyed by Reuters before the Jan. 4 announcement, with a medium forecast of a rise of 10 cents a barrel for Arab Light, and a 25-cent widening in the discount of Arab Heavy.
Aramco doesn't disclose its thinking for movements in OSPs, but one possible reason the prices were raised when the market was expecting a reduction is that Dubai crude's discount to Brent widened considerably in December.
As the Saudis are believed to try and keep prices more or less the same for customers in various regions, a widening of the Dubai-Brent exchange for swaps <DUB-EFS-1M> would seem to justify increasing the OSPs for Asia while cutting them slightly for Europe.
Brent was $5.20 a barrel higher than Dubai on Jan. 7, which represents a gain of 37 percent since the $3.83 on Dec. 7 last year.
But the premium has narrowed from $5.40 a barrel on Jan. 2, a trend that could continue, given the adequate supplies of light crude globally and economic weakness in Europe, a major consuming centre.
The end of the current cold weather in North Asia, which has boosted demand for kerosene, and the start of refinery maintenance season, may also combine to curtail demand for heavier crude grades in coming months.
This will encourage Aramco to lower OSPs in a bid to keep volumes healthy.
Lower refining margins will also eventually encourage lower OSPs, especially if refiners are able to switch to alternative, cheaper crudes.
Abu Dhabi National Oil Co. and Yemen cut their OSPs, Qatar trimmed its retroactive price for December, while Iran and Iraq have yet to release their prices for Asia.
However, while the Saudis are the biggest supplier to Asia, other crude producers will be keen to sell extra cargoes if they are able to undercut Aramco's prices, even by a small margin.
Refining margins in Asia have recovered slightly in recent days to stand at around $7.18 a barrel over Dubai crude, Reuters data shows.
This is up from the average of $6.02 a barrel for the past 15 days, but still 3.2 percent below the 365-day moving average of $7.42.
Also, margins are now being supported by the demand for kerosene for heating out of Japan, which has boosted middle distillates such as jet fuel.
This means margins are likely to come under pressure again, once the winter demand eases.
Another factor that may lead to a lowering of the Saudi OSPs is the narrowing backwardation of Dubai crude.
The first to second month spread <DUB-DUB1-S> was 44 cents a barrel on Jan. 7, less than half the $1.01 it was at the end of October last year.
The easing of the backwardation suggests the premium buyers are willing to pay for immediate cargoes is easing, a sign strong demand seen recently may be easing.
Pulling together the various market signals presents a picture of current robust Asian crude demand easing slightly in coming months as winter ends and refineries go into maintenance.
Against this there is stronger economic growth, especially in China, as a bullish factor for crude demand in the region.
However, on balance, it seems fair to expect that the increase in Saudi OSPs in February won't be repeated in March.
(Editing by Clarence Fernandez)