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Top Oil Buyers Said to Seek More Saudi Crude Amid Disruption


May 2, 2019, by Serene Cheong, Sharon Cho and Debjit Chakraborty
(Bloomberg)

Oil refiners in Asia are asking Saudi Arabia for more crude as the world’s top consuming region deals with supply disruptions from Iran to Venezuela, according to people with knowledge of the matter.

Customers are seeking additional cargoes for loading in June and July from OPEC’s biggest producer, the people said, asking not to be identified because the information is confidential. The requests are for supplies on top of what the refiners are due as part of term contracts with state-run Saudi Aramco, they said.

The scramble for shipments comes just as the U.S. tightens its squeeze on Iranian flows, with sanctions waivers for several buyers such as China and India coming to an end on Thursday. Unexpected disruptions to supply from Russia and Nigeria as well as turmoil in OPEC member Venezuela are also adding to fears of a crunch.

Prices have seesawed in the past week on uncertainty over how Saudi Arabia will respond. The U.S. administration has said the kingdom will pump more, but Saudi Oil Minister Khalid Al-Falih has been less clear-cut. He has pledged to keep the market balanced, but also signaled that OPEC and its allies including Russia could extend output curbs until the end of this year. Brent crude is down more than 2 percent this week in London, poised to break five straight weeks of gains.

Some Asian refiners are asking Aramco, known officially as Saudi Arabian Oil Co., for more crude even before the producer sets the cost for the cargoes, the people said. The end of the U.S. exemptions that allowed purchases from Iran has caused a headache for processors in the region, who are being forced to seek potentially costlier alternatives.

“The market looks well supplied right now, but we’ve yet to see the full impact of what happens with Iranian volumes,’’ said Mohammad Darwazah, a director at Medley Global Advisers in New York. “Saudi Arabia will likely push more exports to Asia in June.”

Official selling prices for June-loading shipments are expected to be announced only by the end of this week. Usually, buyers will request supplies a few days after the company sets prices for the month.

Aramco’s press office declined to comment.

The market could suffer a loss of as much as 900,000 barrels a day of Iranian oil, according to Goldman Sachs Group Inc., after the U.S.-issued waivers expire. The resulting shortfall is expected to be offset by higher production from core producers in the Organization of Petroleum Exporting Countries and Russia, the bank said, while warning of higher price volatility in coming months.

In a Twitter post last month, U.S. President Donald Trump reassured global markets that “Saudi Arabia and others in OPEC will more than make up the oil flow difference in our now full sanctions on Iranian oil.”

Last month, the kingdom cut production by about 500,000 barrels a day more than required by the pact with fellow OPEC members, so it could increase output significantly without violating the deal.

“They’ve got some room for maneuver,” said Darwazah. “The U.S. can push Saudi Arabia to take away Iranian market share in Asia, and they will do that when needed. Politically, the Saudis are probably quite happy.’’



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