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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