Saudi crude export offer, US import boost could ease price: EIA
Washington (Platts)--26May2004
Even though Saudi Arabia's offer to increase crude output significantly in June has failed as yet to lower crude prices, those additional supplies should have the effect of easing prices in coming weeks, the US Energy Information Administration said Wednesday. EIA, in its This Week in Petroleum report, dismissed the view of some oil analysts that the Saudi announcement last week that it had allocated some 9-mil b/d in crude sales in June for domestic and foreign customers will have little if any impact on prices. Those analysts suggest that US refinery constraints, the timing of the Saudi supply increase, the lack of spare capacity and the quality of the incremental Saudi crude will limit its impact in softening the market. "EIA has also reviewed these factors, but reaches a different conclusion," said EIA. The Saudi announcement "could contribute to lower prices, particularly if the Saudis maximize the incremental supply of light crude and provide terms that will enable potential buyers to commit to the purchase of more oil without undue risk," it said. On the crude-quality issue, EIA said it disagrees with the view that because much of the Saudi's incremental supply is heavier and more sour, the market does not need it. "Their reasoning is that since this is not the ideal crude sought by the market, it is of little use," EIA said. "However, EIA believes that Saudi Arabia still has some light, relatively sweet crude oil (with a lower sulfur content) excess capacity, and that a reasonable amount of that spare crude could be included in this increased production." EIA noted that smaller amounts of additional light, sweet crude are potentially available from other OPEC producers should they want to follow the Saudi lead. "Also, since not all refiners need high-quality crude oil, additional supplies of lower quality crude, while less desirable, can free up available high-quality crude oil for those who need it the most," EIA said. "The bottom line is that extra crude oil of any grade that is priced to sell will find buyers and help to alleviate current market tightness." EIA said that although US crude inventories typically fall this time a year, if imports increase enough to keep inventories about 290-mil bbl, "they would be near the middle of the average range by as early as September." A crude import average of 10.3- TO 10.5-mil b/d during July and August "would minimize the usual crude draw during these months while helping to rebuild refined product inventories," EIA said. "Higher production now would also help to reduce the prospects for volatility in heating fuel markets this winter." This story was first published in Platts real-time news and market reporting service Platts Global Alert (http://www.platts.com/Oil/Real-Time%20Information/Global%20Alert/ ).
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