Saudi crude becoming less attractive to US refiners: EIA

Oil imports from Saudi Arabia are becoming less attractive to US refiners, due to the recent widening of the spread between Dubai/Oman crude and Mars crude following OPEC output cuts, the US Energy Information Administration (EIA) said on Thursday.

The price difference between Dubai/Oman medium, sour grade oil, and US-produced Mars crude was relatively low last year, the agency noted.

“For this reason, medium and heavy crude oils from Saudi Arabia and Iraq were relatively attractive to US refiners because they produced a profitable slate of finished products when processed in complex refineries.”

Imports from Saudi Arabia into the US increased for five consecutive weeks this year, rising from 1 mbd for the week ending Jan. 6, to 1.3 mbd for the week ending Feb. 10.

However, recent market developments, such as the agreement between OPEC members on Nov. 30 to reduce output by 1.2 million barrels per day, could mean that Saudi crude is favored less by American refiners going forward.

The relative price of Dubai/Oman crude oil rose after the OPEC deal because the supply reductions pledged by Middle East producers disproportionately affected medium sour crudes, the EIA said.

Consequently, the premium of Dubai/Oman over Mars reached its highest level in over a year in January 2017.

This, in turn, is likely to encourage US refiners to process more domestic medium sour barrels while reducing imports of comparable grades from the Middle East, the report added.

Last month, Bank of America Merrill Lynch said that Saudi Arabia would likely cut production of heavy crude grades as part of its pledge to restrict output. 

“The key question is whether Saudi will cut output evenly among its three main crude grades or favor some over others. The historical pattern to sell more profitable (light) grades should be even more pronounced this time around as the kingdom needs to maximize revenues in this low price environment,” the lender said.

Growing light crude oil supplies, combined with fewer medium to heavy barrels, will lead to a narrowing in light-heavy crude spreads worldwide. This, along with a potential tax reform on imports and exports from the Trump administration, may encourage US refiners to import less crude, the report noted.