Saudis hike light crude prices, driven by high IMO 2020 demand

SINGAPORE (Bloomberg) - Saudi Arabia has priced its lighter crude at the widest premium to heavier oil in almost two years as new rules mandating cleaner shipping fuels drive demand for less-sulfurous grades.

Arab Extra Light’s premium over Arab Heavy ballooned to $4.65/bbl for December sales to Asia, according to data compiled by Bloomberg. That’s the highest since March 2018 and $2 more than the previous month. The September spread was as narrow as $1.05.

Lighter oil is highly sought after at the moment as it can be more easily blended into less-pollutive fuels that will be compliant with the International Maritime Organization standards that take effect Jan. 1. The rules, known as IMO 2020, have also boosted prices of other less-sulfurous grades such as Qatar Land, Russia’s Sokol and Australia’s Pyrenees.

 “The transition to the world of low-sulfur fuels is already underway,” said Senthil Kumaran, a senior oily analyst at FGE in Singapore. “Saudi Arabia’s pricing is a reflection of the estimated uptake in consumption of these lighter crudes.”

A couple of other developments have also allowed the world’s top oil exporter to command higher prices for its lighter crudes. A recovery in profits from making naphtha from Dubai oil in Singapore has also aided demand as less-sulfurous oil is more suitable for production of the plastics feedstock. Meanwhile, the September attacks on the kingdom’s energy infrastructure disproportionately reduced supply of the more sought-after varieties.

Saudi Aramco raised December pricing for sales of its light oil grades to Asia to their highest level since 2014 on Monday, just a day after it announced it would go ahead with its long-awaited initial public offering. The shipments will arrive in the region just as the IMO 2020 rules take effect.