North Asia's Saudi crude buyers receive up to 10% cut in November allocations

Tokyo (Platts)--11 Oct 2017 457 am EDT/857 GMT

A number of Saudi crude oil buyers in North Asia have received up to a 10% reduction from their term volumes for November loadings, market sources said Tuesday, a day after Saudi Arabia announced it was preparing to keep its supply allocations for that month a record 560,000 b/d below its customers' requests.

  • China sees smaller term allocation cut on new refining projects
  • Saudi cuts may boost spot demand for Russian crude grades

Saudi Aramco fielded demand for 7.711 million b/d in November loadings but would only allocate 7.150 million b/d, the Saudi energy ministry had said, as the kingdom aims to keep the OPEC/non-OPEC production cut agreement on track in its efforts to rebalance the market.


Podcast: Russia-OPEC crown new relationship with Moscow meetings
Podcast: Double, double oil and trouble; fire burn and caldron bubble

That is far below its exports in November 2016 of 8.258 million b/d, according to the Joint Organizations Data Initiative.

Sources with North Asian refiners said the allocation shortfall was massive, and would add to the tightness in Saudi crude supplies into Asia, given their difficulties in receiving any extra supplies from Saudi Aramco across its exported grades.

"Our incremental supply requests for lighter grades have not gone through since September onwards," a North Asian refiner source said, adding that was in addition to previously unavailable incremental heavier grade supplies.

China, the biggest oil consumer in Asia, is also receiving a cut for November loadings but below 10%, according a Beijing-based source familiar with the matter, to meet demand from the new 200,000 b/d CNOOC Huizhou phase 2 refinery project and PetroChina's 260,000 b/d Yunnan refinery.

CNOOC started up Huizhou phase 2 on September 18. To secure feedstock supply, CNOOC signed a one-year contract with Aramco to take one VLCC cargo of Arab Medium a month from the second half of 2017.

PetroChina also has secured incremental supplies from Saudi Arabia for its Yunnan refinery, which started up in August. The new refinery has received a total of four VLCCs from Saudi Arabia's Ras Tanura port since July, according to cFlow, Platts trade flow software.

Sources with CNOOC and PetroChina declined or were unavailable to comment Tuesday on Saudi Arabia's term allocation cut.


Market sources also said that Saudi Arabia's cuts for November may lead to an uptick in spot demand for crude from the Asia-Pacific region, and even as far away as the US and West Africa.

In the short term, Asian buyers could look to make up for any reductions in Saudi supplies with Russia's Far Eastern crude Sokol and ESPO, due to their proximity, sources said.

Affordable freight from Russia to North Asian destinations such as South Korea, coupled with a widening Brent-Dubai Exchange Futures for Swaps spread, makes ESPO and Sokol attractive alternatives for refiners here, traders said.

"December prices [are] stable compared with November" for Russian grades destined for Asia, a Chinese trading source said. "Demand is still not bad, and freight is cheap."

A wider Brent-Dubai EFS spread makes Dubai-linked grades such as Sokol more attractive compared with Brent-linked grades.

Other traders noted that even though Aramco was not fulfilling all of its customer requests for November, it was still increasing exports from recent months.

Saudi crude exports averaged 6.688 million b/d in September, or 462,000 b/d less than what Aramco has planned for November, according to cFlow.

This compares with exports of 6.6 million b/d in August and 6.694 million b/d in July, according to Platts estimates.

"They cut allocations, but exports keep rising," a regional crude trader said. "Exports for September and October were less than [November]."

The Saudi ministry, in its announcement, said its cuts were aimed at showing how the kingdom is "restraining not only the top line of production volume, but even more importantly the bottom line of exports, which are what ultimately shape global inventories and market balances."

Saudi Arabia has in recent months urged the OPEC/non-OPEC coalition to begin tracking exports to confirm compliance with the output cut agreement, with frustration that despite high conformity with production quotas, some members have continued to keep export levels elevated, delaying the market rebalancing.

The production cut agreement calls on OPEC and 10 non-OPEC countries, led by Russia, to cut a combined 1.8 million b/d in supplies.

--Takeo Kumagai,
--Oceana Zhou,
--Eesha Muneeb,
--Edited by Herman Wang,
--Edited by Jason Lindquist,

Platts Fujairah Oil Inventory Storage Data

S&P Global Platts is exclusively publishing weekly oil inventory data for the Fujairah Oil Industry Zone, including an aggregate breakdown of heavy distillates and residues, middle distillates, and light distillates. The data is now freely available to access via the Platts Fujairah data platform

FSD Dashboard Request access to analysis

Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.