Saudi to supply full contract volumes to Asian buyers

Monday, 14 May 2012 00:00 - - {{hitsCtrl.values.hits}}

SINGAPORE/TOKYO (Reuters) : Saudi Arabia will supply full contracted crude volumes to Asian buyers in June, steady from May, as ample supplies of competing grades keep pressure off refiners to replace lost Iranian barrels.

Buyers may seek higher volumes from top oil exporter Saudi Arabia from next month, trade sources said, as summer demand increases and the market begins to feel the full impact of sanctions on Iran.

But as of now, lower profits from processing a barrel of crude into products and a weak demand season are discouraging Asian refiners from ramping up output, offsetting a cut in purchases from sanctions-hit Iran.

At least six Asian refiners confirmed they are just taking in full volumes for June from Saudi Arabia.

Refiners are allowed to seek 10 percent more than the volume agreed in annual contracts under a clause called operational tolerance. They can also cut purchases by the same extent.

Global markets are currently awash with oil as producers raised output to help fill a supply gap caused by a drop in imports from Iran while demand is lower on seasonal refinery maintenance and a slowdown in world economic growth.

“We just have to decide when it’s time to load the cargoes,” a source at a refinery said, adding that this will depend on whether rival Oman grade will stay weak in the July spot market that will start trading this week.

Profits from processing crude into fuels averaged $7.19 a barrel in the last five days compared with $7.63 in the past 12 months. It touched a high of $10.02 a barrel in August.

Saudi Arabia’s June supply volume to the Asian refiners were unchanged from May, the sources familiar with the matter said. Saudi Arabia has supplied full contractual volumes to most Asian buyers since late 2009.

“We got a notice for full contract volume, and there is no change from May,” a Seoul-based refining source said.

The steady supply from Saudi Arabia comes as some of the largest buyers of Iranian crude in Asia have cut back imports to seek exemption from U.S. sanctions and as a European embargo makes it impossible to secure insurance cover for tankers to ship the crude.

The United States and Europe are trying to squeeze the revenue Iran makes from oil exports to force it to halt a nuclear program they fear will be used to make weapons but which Tehran says is for power generation. Iran exports about 2.2 million barrels per day (bpd), mostly to Asia.

Saudi Arabia, OPEC’s biggest producer, is pumping around 10 million bpd and is storing 80 million barrels to meet any sudden disruption in supplies, Saudi Oil Minister Ali al-Naimi had said.

Oil markets would remain well supplied even after fresh international sanctions against Iran take effect, Naimi said, as global crude oversupply is already as much as 1.5 million bpd.