NEW YORK, 12 November 2004 — The world’s top oil producer Saudi Arabia told a US oil major on Wednesday that its crude allocations would be steady at 5 to 10 percent under contract volumes for the month of December, unchanged from last month.
Saudi Arabia is boosting output to meet world demand, but some of those barrels are hard-to-refine heavy sour crude, some of which is difficult to place in the US market, said a trader at the US oil major.
“It’s not so much an allocations issue anymore; it’s whether you can use the barrels they are offering,” said the trader.
Since late last summer, Saudi Arabia has been offering US independent refiners extra barrels of heavy grades outside of contracts. Some refiners who have been offered the extra barrels, like Valero Energy Corp., have taken extra barrels, while some others, like Conoco Phillips have refused them.
Last week, Riyadh cut official selling prices on all of its crudes to the United States by 70 cents to a $1.00 a barrel. The Arab Heavy grade was cut by 90 cents to -$14.90 to West Texas Intermediate.
Consultants Wood Mackenzie said on Wednesday that Saudi Arabia’s production will rise from 9.5 million barrels in the third quarter of 2004 to average 11 million bpd next year.
Saudi Arabia has also told its main Japanese and South Korean term buyers it will supply full contracted volumes of crude oil in December, as it did in November, Japanese and South Korean refiners said yesterday.
Other Middle East producers were also expected to supply full contract volumes in December, steady from November.
“(The Saudi move) was expected as Saudi Arabia has done this for several months,” said an official at a Japanese refiner.
Saudi Arabia, OPEC’s biggest oil producer, has been supplying full contract volumes to Japan and South Korea since May.
In April, Saudi term supplies to Japan were set at 12-13 percent below full contract volumes, traders said.
Kuwait and Iran would also likely maintain December supply at full contracted volumes, steady from November, traders and industry officials in Japan and South Korea said.
“We expect Kuwait and Iran to supply full volumes in December. It is unlikely they will cut supplies,” an official at a Japanese refiner said.
Saudi Arabia’s December allocations to other parts of the globe were also steady compared with November.
Late on Wednesday, Saudi Arabia told global oil majors it would keep December supplies to them steady at November levels.
“Saudi has allocated a little less Arab Extra Light to us and a little more Arab Light,” one Asian customer said.
