SAUDI ARABIA. Lifters of Saudi crude expect the world's top oil exporter to raise prices of its heavy crude on the back of strong fuel oil prices, and to trim the price of its lighter grades as Asian refiners cut runs.

But lifters polled agreed on the direction, not the size of the moves. Refiners said this was a tough month to predict, as product prices have started diverging with the fuel oil crack rising strongly while the gas oil crack has plunged.

"There's a lot to take into consideration this month, but just looking at product prices, this should make sense," said a North Asian lifter, who expected higher heavy crude prices and lower lights.

"We also hope the producer will take into account the distorted Oman/Dubai relations this month," he added.

For several sessions last month, Oman crude, which usually trades at between 40 cents and US$1.20 a barrel above Dubai crude as it is higher quality than Dubai, stood at a deep discount to Dubai swaps.

Saudi prices set the trend for Iranian, Kuwaiti and Iraqi prices, affecting the price of more than 8 million barrels per day (bpd) of crude sold to Asia. They are usually released around the fifth of each month before crude starts trading.

The front-month fuel oil crack rose to average US$10.76 a barrel below Dubai swaps in August, up a steep US$7.63 from July, as strong demand from the Middle East tightened supplies, Reuters data showed.  
 
 That would likely prompt Saudi Aramco to raise the prices of Arab Medium and Heavy, which have a high fuel oil content, lifters said.

Lifters expected Arab Heavy to be priced at between US$4.50 and US$5.90 a barrel below the Oman/Dubai average, up from a US$6.10 discount for September.

They expected Arab Medium at between a US$2.45 and US$1.75 a barrel discount, with just one customer tipping it at a weaker US$4.45 a barrel.

The same outlier also expected Arab Light at a US$1.80 a barrel discount, much weaker than the 30-cent premium to 30-cent discount range obtained from other lifters.

As fuel oil strengthened, however, the front-month gas oil crack fell US$10.22 to average US$23.02 a barrel above Dubai swaps, almost half the record US$45.17 set in May, on weakening demand for the product worldwide, putting lighter grades under pressure.

Asian refiners have cut or are planning to trim crude processing rates, tracking moves by Western peers, as margins were hit by weakening demand.

Saudi Arabia, OPEC's only member with any significant spare capacity, may come under pressure from within OPEC ranks to reduce supplies to prevent a further fall in crude prices when the group meets on 9 September.

"Raising prices may be a way for the Saudis to effectively cut supplies without having to formally do it," said a trader.

State oil giant Saudi Aramco, which sells half its exports to Asia, sets its oil prices based on recommendations from its customers and after calculating the change in the value of its crude over the past month, based on yields and product prices.

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