Saudi heavy crude price to Asia may hit highest in over three years

World No.1 oil exporter Saudi Arabia could raise prices for the heavy crude it sells to Asia in August to the highest in more than three years, trade sources said.

The move would come after refiner profits on churning out fuel oil from heavy crude hit record highs, with state oil giant Saudi Aramco cutting heavy crude production as part of a drive led by the Organization of the Petroleum Exporting Countries (OPEC) to rein in global output.

Saudi Aramco may lift the official selling price (OSP) for Arab Heavy crude to Asia by 20 cents a barrel to $1.65 below the average of Oman and Dubai quotes in August, its narrowest discount since December 2013, according to four Asian crude buyers.

A fifth trade source surveyed by Reuters said the price for the grade would remain unchanged from this month.

A hike in prices for Saudi heavy crude could buoy demand for such oil from other Middle Eastern producers, as well as supplies from Russia, Angola and the Americas.

"Maybe they (Saudi Aramco) will cut Arab Heavy supplies for August because of the OPEC cut and summer demand for power generation," said a trader with a North Asian refiner.

Tighter heavy crude supplies have reduced fuel oil output and helped push profits on making that product in Asia to an all-time high of a 59 cents premium against Dubai crude on June 22.

Meanwhile, the four sources who expected a climb in Saudi heavy crude prices predicted that flagship Arab Light's OSP would fall to a two-month low for August, down 20 cents a barrel after the Dubai market weakened last month.

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.

Source: Reuters

Saudi, Egypt lead Arab states cutting Qatar ties, Iran blames Trump

Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed their ties with Qatar on Monday, accusing it of supporting terrorism and opening up the worst rift in years among some of the most powerful states in the Arab world.

Iran -- long at odds with Saudi Arabia and a behind-the-scenes target of the move -- immediately blamed U.S. President Donald Trump for setting the stage during his recent trip to Riyadh.

Gulf Arab states and Egypt have already long resented Qatar's support for Islamists, especially the Muslim Brotherhood which they regard as a dangerous political enemy.

The coordinated move, with Yemen and Libya's eastern-based government joining in later, created a dramatic rift among the Arab nations, many of which are in OPEC.

Announcing the closure of transport ties with Qatar, the three Gulf states gave Qatari visitors and residents two weeks to leave. Qatar was also expelled from the Saudi-led coalition fighting in Yemen.

Oil giant Saudi Arabia accused Qatar of backing militant groups -- some backed by regional arch-rival Iran -- and broadcasting their ideology, an apparent reference to Qatar's influential state-owned satellite channel al Jazeera.

"(Qatar) embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS (Islamic State) and al-Qaeda, and promotes the message and schemes of these groups through their media constantly," Saudi state news agency SPA said.

It accused Qatar of supporting what it described as Iranian-backed militants in its restive and largely Shi'ite Muslim-populated Eastern region of Qatif and in Bahrain.

Qatar said it was facing a campaign aimed at weakening it, denying it was interfering in the affairs of other countries.

"The campaign of incitement is based on lies that had reached the level of complete fabrications," the Qatari foreign ministry said in a statement.

Iran saw America pulling the strings.

"What is happening is the preliminary result of the sword dance," Hamid Aboutalebi, deputy chief of staff of Iran's President Hassan Rouhani, tweeted in a reference to Trump's recent visit to Saudi Arabia.

Trump and other U.S. officials participated in a traditional sword dance during the trip in which he called on Muslim countries to stand united against Islamist extremists and singled out Iran as a key source of funding and support for militant groups.

U.S. Secretary of State Rex Tillerson told reporters in Sydney on Monday that the spat would not effect the fight against Islamist militants and that Washington has encouraged its Gulf allies to resolve their differences.

A split between Doha and its closest allies can have repercussions around the Middle East, where Gulf states have used their financial and political power to influence events in Libya, Egypt, Syria, Iraq and Yemen.

(For a graphic on trade balance between Qatar and its diplomatic critics, click reut.rs/2rsbaTi)

FALLOUT

The economic fallout loomed immediately, as Abu Dhabi's state-owned Ethihad Airways, Dubai's Emirates Airline and budget carrier Flydubai said they would suspend all flights to and from Doha from Tuesday morning until further notice.

Qatar Airways said on its official website it had suspended all flights to Saudi Arabia.

Qatar's stock market index sank 7.5 percent with some of the market's top blue chips hardest hit.

The measures are more severe than during a previous eight-month rift in 2014, when Saudi Arabia, Bahrain and the UAE withdrew their ambassadors from Doha, again alleging Qatari support for militant groups. At that time, travel links were maintained and Qataris were not expelled.

The diplomatic broadside threatens the international prestige of Qatar, which hosts a large U.S. military base and is set to host the 2022 World Cup. It has for years presented itself as a mediator and power broker for the region's many disputes.

Kristian Ulrichsen, a Gulf expert at the U.S-based Baker Institute, said if Qatar's land borders and air space were closed for any length of time "it would wreak havoc on the timeline and delivery" of the World Cup.

"It seems that the Saudis and Emiratis feel emboldened by the alignment of their regional interests - toward Iran and Islamism - with the Trump administration," Ulrichsen said. "(They) have decided to deal with Qatar's alternative approach on the assumption that they will have the (Trump) administration's backing."

Qatar used its media and political clout to support long-repressed Islamists during the 2011 pro-democracy "Arab Spring" uprisings in several Arab countries.

Muslim Brotherhood groups allied to Doha are now mostly on the backfoot in the region, especially after a 2013 military takeover in Egypt ousted the elected Islamist president.

The former army chief and now president, Abdel Fattah al-Sisi, along with the new government's allies in Saudi Arabia and the UAE, blacklist the Brotherhood as a terrorist organization.

Egypt, the Arab world's most populous nation, said on its state news agency that Qatar's policy "threatens Arab national security and sows the seeds of strife and division within Arab societies according to a deliberate plan aimed at the unity and interests of the Arab nation."

Oil prices rose after the moves against Qatar, which is the biggest supplier of liquefied natural gas (LNG) and a major seller of condensate - a low-density liquid fuel and refining product derived from natural gas.

Source: Reuters

Saudi Arabia, Russia push to extend oil output cuts until March 2018

Saudi Arabia and Russia, the world's two top oil producers, agreed on Monday on the need to extend oil output cuts for a further nine months until March 2018 to rein in a global crude glut, pushing up prices.

The timing of the announcement ahead of OPEC's next official meeting on May 25 and the statement's strong wording surprised markets, and the move is expected to go a long way to ensure that other OPEC members and producers who participated in the initial round of cuts fall into line.

In a joint statement that followed an earlier meeting, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal until March next year.

The ministers pledged "to do whatever it takes" to reduce global inventories to their five-year average and expressed optimism they will secure support from producers beyond those in the current deal, the statement said.

"There has been a marked reduction to the inventories, but we're not where we want to be in reaching the five-year average," Falih told a briefing in Beijing alongside Novak.

"We've come to conclusion that the agreement needs to be extended."

Saudi, the defacto leader of OPEC, and Russia, the world's biggest producer, together control a fifth of global supplies, but have been spurred into action as crude futures LCOc1CLc1 have languished around $50 per barrel.

Under the current agreement that started on Jan. 1, the Organization of the Petroleum Exporting Countries (OPEC), and other producers including Russia pledged to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.

While it was broadly expected that OPEC and Russia would agree to extend the cut, the timing and wording of the statement sent crude prices up more than 1.5 percent in Asian trading.[O/R]

"I think OPEC and Russia recognize that in order to get the market back on their side they will need 'shock and awe' tactics where they need to go above and beyond a simple extension of the deal," said Virendra Chauhan, Singapore-based analyst at Energy Aspects.

"The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market."

Russia's top producer Rosneft helped prepare the deal and is ready to comply with the extension, according to Russian media.

U.S. SHALE, THE UNKNOWN

If producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter, said Edward Bell, director for commodity research at Emirates NBD in Dubai.

But one major unknown will be the response of low-cost U.S. shale producers, which could undermine the unified effort to prop up the market.

The United States did not participate in the original agreement to cut supplies and producers there have ramped up output this year, buoyed by the recovery in prices from multi-year lows hit in January 2016.

U.S. drilling activity RIG-OL-USA-BHI last week rose to its highest in two years, while U.S. production has jumped more than 10 percent since its mid-2016 trough.

A jump in U.S. exports to Asia, the world's biggest and fastest growing market and the last region in which OPEC supplies dominate, is a particular worry for the producer club.

"Russia and Saudi Arabia may be trying to coordinate a push to keep access to their most important market (China) in their favor and encourage Chinese importers to displace alternative cargoes," said Bell.

An OPEC source familiar with the market situation told Reuters earlier on Monday that oil inventories in floating storage have declined by one-third since the start of the year.

Source: Reuters

Brazil's BRF says it continues some meat exports to Saudi Arabia

Brazil's BRF SA said it was continuing some exports to Saudi Arabia after the kingdom restricted Brazilian beef and poultry imports following accusations that bribery in Brazil allowed sales of rotten and salmonella-tainted meats.

Saudi Arabia's Food and Drug Authority said on Wednesday it had barred imports from four companies, including BRF, citing safety concerns.

But a spokeswoman for BRF told Reuters over the weekend that only one of its plants was covered by the order, without specifying the volume of exports affected.

"All other factories, including the plants that export to Saudi Arabia, remain functional," the company said in a statement.

Saudi authorities could not be reached for comment.

Source: Reuters