Kingdom to supply full oil contract volumes to the world

SINGAPORE: Saudi Arabia will keep supplying crude oil to its customers in June at the same volume as May as ample supplies of competing grades keep pressure off refiners to replace Iranian barrels.
At least six Asian buyers and one global major said they would continue to receive full contracted volumes in June as they did in May. One European company said the June supply would be same as May but declined to specify the volume.
“We got a notice for full contract volume, and there is no change from May,” a Seoul-based refining source said.
Saudi Arabia has supplied full contractual volumes to most Asian buyers since late 2009.
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 US sanctions and as a European embargo makes it impossible to secure insurance cover for tankers to ship the crude.
Typically, oil demand dips in the second quarter in a transition from heating consumption to summer gasoline demand in the northern hemisphere and many Asian and European refiners carry out planned maintenance shutdowns.
That has helped offset a cut in purchases from Iran for now. But buyers may seek higher volumes from Saudi Arabia from next month, trade sources said.
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 next week.
Saudi Arabia is pumping around 10 million bpd and is storing 80 million barrels to meet any sudden disruption in supplies, Petroleum and Mineral Resources Minisrer Ali Al-Naimi said on Tuesday.
Oil markets would remain well supplied even after fresh international sanctions against Iran take effect, Al-Naimi said, as global crude oversupply is already as much as 1.5 million bpd.
Iran exports about 2.2 million barrels per day (bpd), mostly to Asia.
Many traders in Europe have said if there should be demand shift from Iranian crude to Saudi barrels, it would come from Asia.
“The problem here is not all the buyers of Iranian crude have term contracts with Saudi and Saudi only supplies to term customers,” a trader in Europe said.
“European buyers need more flexibility than Asians because we are not sure about demand. It’s not as strong and steady as in Asia.”
Reuters model shows profits from processing crude into fuels, or refining margins, are more stable in Asia than Europe. The margins averaged $7.19 a barrel in the last five days in Singapore, compared with $7.63 in the past 12 months. They touched a high of $10.02 a barrel in August.
FROM: REUTERS