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Saudis in tough act to balance sweet-sour crude supply

Saudis in tough act to balance sweet-sour crude supply

Brent-Dubai spread trades near widest level since 2005; Heavy sour crude to remain depressed during Libya outage; Japan's recovering sour demand provides some support

April 23, 2011 8:00 by

Values for the lighter Middle East grades have rallied this week as refiners meet requirements in the run-up to increasing summer demand for transport and harvesting in Asia.

Abu Dhabi Murban, for example, jumped to a premium as high as 85 cents to the reference official selling price this week from about 30 cents earlier this month.

Japan’s “natural appetite for Middle East crude is coming back and traders are anticipating that demand coming from Asia is getting stronger,” said John Cross, a crude broker at Daman Quattro based in Dubai.

But “there is an abundance of sour crude in the market and I think (the Saudis have) seen that the instant response of pumping more sour crude is not going to fill in the gaps needed to cover the shortfall in the sweet crude,” Quattro added.

Although Saudi Arabia and other OPEC producers increased production in response to the interruption of Libyan exports, Minister al-Naimi said the kingdom cut output to 8.292 million bpd in March from 9.125 million in February.

Naimi also said Saudi Arabia had sold 2 million barrels of a special blend of crude that tried to replicate the high quality Libyan barrels lost, but demand for the blend has been tepid, according to oil traders.

“If demand craters because the price goes too high, the people who have to cut (output) the most are the Saudis, so they want to keep the price under control,” said John Vautrain, director at Purvin & Gertz energy consultants in Singapore.

“They are trying to dance around to keep the market comfortable and everybody happy.”

The kingdom promised nearly $93 billion in handouts to its citizens in the wake of a wave of unrest that has engulfed the Arab world since the start of this year, making a sharp fall in oil prices a major risk for its budget.

“Saudi Arabia is in a very difficult position,” said Friesen from Societe Generale. “They would like to see a higher price because their expenditure is higher, but the market has become a bit nervous about the risks to global growth. The Saudis want to make sure we don’t get to that tipping point.” (With additional reporting by Yaw Yan Chong; Editing by Clarence Fernandez)

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