Selling oil to the Saudis

In a modern version of "coals to Newcastle",
Saudi Arabia is buying oil :

http://www.tradearabia.com/tanews/newsdetails_snOGN_article110417_cnt.html Saudi Aramco buys first-ever fuel oil cargoes Posted: Friday, September 01, 2006 Singapore Saudi Aramco, a major fuel oil exporter to East Asia, has imported its first-ever cargoes of the residual fuel, taking a total of around 160,000 tonnes for August and September deliveries, to meet peak summer utility demand amid a depressed global market, traders said on Friday. The two 380-centistoke (cst) cargoes, for delivery to Rabigh, by the Red Sea, were sold from Europe by a Western trader at a discount of around $15 a tonne to Singapore spot quotes, on a cost-and-freight (C&F) basis. 'This is the first time ever that Aramco has actually bought fuel oil. It's a case of optimisation -- the market has been poor and they have cut back on their own production due to depressed prices in the face of peak summer demand,' a Singapore-based Middle East trader said. 'It's cheap to buy but bad to sell. They are still producing fuel oil but the volumes are not enough for domestic consumption so it makes sense, at this time, for them go out to the market and buy.' Both parcels, for second-half August and second-half September delivery, are of unusually low-metals content and of maximum 3.5 percent sulphur. Aramco had also called off plans to export two September-loading cargoes, totalling 160,000-200,000 tonnes, from its Ras Tanura and Jubail refineries. Traders said the refiner was producing less cracked fuel oil via secondary units and could instead sell feedstocks such as straight-run fuel oil, which fetch better prices. 'The Saudi refineries are quite sophisticated and they have that flexibility to tinker with the configuration without impacting on their overall yield volumes,' another source said. 'They can also sell the feedstocks, though I have not actually seen any of them hitting the market as yet.' The oil giant is the largest Middle East fuel oil supplier into East Asia, exporting 600,000-800,000 tonnes each month from three plants -- in Yanbu, Jubail and Ras Tanura -- during the first-half of the year. Exports normally fall in the third quarter when electricity demand peaks during the sweltering summer season. The unexpected demand for fuel oil is in line with increased demand for oil products, mainly gas oil and gasoline, from the Middle East, particularly among other oil-rich countries such as the United Arab Emirates and Qatar. -Reuters

What the Saudis seem to be saying is 'we can buy residual fuel oil from Singapore cheaper than what we can make it ourselves, given that if we don't have to make it we can alter our refined products mix to a more valuable range.'

The western trader who sold at less than the spot price might have had special reasons for taking the loss, like he had no storage tanks available and he needed to release the ship for its next cargo.

But it all sounds like the world's crude oil profile is low on light sweet crude and overflowing with heavy sour. This tends to confirm the idea that light sweet crude has peaked.

---