HOUSTON: Prices for sour crude oil have climbed globally this month after top exporter Saudi Arabia hiked prices and expanded production cuts of higher-sulfur oil, the first sign its efforts to prop up global prices are having an impact.
The de facto leader of the Organisation of Petroleum Exporting Countries (Opec) this month deepened its production cuts to one million barrels per day in response to benchmark prices that fell below US$72 (RM335) a barrel this summer.
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“The kingdom’s curbs have had an outsized impact on the supply of medium and heavy-sour barrels,” said Mark Rossano, a partner at energy data provider Primary Vision Network.
The increases, seen among North Sea, US and Canadian sour crude grades, have jumped as oil refiners in China, Europe and the United States bid up dwindling supplies from sanctions on Russia and Saudi Arabia’s cutbacks, according to traders and brokers.
Also pushing up sour crudes are United States government purchases to restock its emergency reserves, production outages from Canadian wildfires and worries about the potential for Atlantic hurricane season to cut production of US sour crude.
Most of Saudi Arabia’s crude oils, such as Arab Light, Medium and Heavy, are sour grades and requires more complex refining and typically trades at a discount to sweet crude, which has a lower sulfur content.
But sour prices are no longer cheap. Norway’s medium-sour Johan Sverdrup crude climbed on Friday to a record US$3.50 (RM16.30) per barrel premium to dated Brent, according to traders, compared with a more than US$6 (RM28) discount in December.
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US Mars sour crude prices last Thursday traded at a US$2 (RM9.31) per barrel premium to US crude futures at Cushing hub, their highest in three years.
It traded at a premium to light, sweet WTI Midland at East Houston terminal, something rarely seen before.
Mars also traded at a US$3.70 (RM17.23) premium to Middle East crude benchmark Dubai, significantly higher than spot Middle Eastern crude.
Western Canadian Select heavy crude, another widely discounted sour grade, traded at the US Gulf Coast on Monday at a US$2.30 (RM10.71) per barrel discount, compared with a more than US$8 (RM37.25) per barrel discount as recently as March, according to brokerage CalRock.
Saudi Arabia’s price hike to Asia, the second month in a row, has pushed some Chinese refiners to seek cheaper sour crude alternatives from the spot market, traders and brokers said. This has lifted prices for other sour crudes.
US Gulf Coast refiners, which are mostly configured to run sour crude, will likely purchase more Latin American barrels, said Rohit Rathod, an analyst at energy data provider Vortexa.
“Opec and its allies are pulling back supplies, and we are already in a tight market, at least for sour crudes.” — Reuters