12.18.09, 12:08 PM EST
By Ikuko Kurahone
LONDON, Dec 18 (Reuters) - Two European oil refiners have stopped buying Saudi Arabia's heaviest crude and are buying other grades after supplies were cut in line with OPEC output curbs last year, officials at the refiners said on Friday.
Top oil exporter Saudi Arabia shouldered the largest share of OPEC's agreed supply cuts of 4.2 million barrels per day last year, and even reduced supplies further than its output target.
It would have cut its heavier grades first, as they are worth the least and are harder for refiners to transform into transport fuels.
One of the refiners has discontinued the purchase of Arab Heavy while buying other grades, while the other has bought no crude at all from OPEC's largest exporter for six months or more.
"We do not have Heavy any more. The volume of Heavy to Europe have fallen so much in the second half of this year and from time to time they refused to supply Heavy to us. So we have found another solution," one official said.
The official did not specify when it halted the purchase of the crude and described the volume it used to buy as "very small". Aramco's largest export grade is Arab Light, and about half of its total exports go to Asia.
Europe's demand for oil from Middle Eastern OPEC producers as a whole has fallen due partly to a sharp fall in consumer and industry demand for oil products such as gasoline and diesel, sources at many European refineries said.
"The call on OPEC from Europe has been reduced this year. There is so much crude around in a low demand environment," the execuive at the second refinery said.
The fall in demand for OPEC crude is in part a function of the recession, in part of a result of OPEC supply cuts, and is also a factor in the wider shift of demand to Asia.
Producers now focus more on the the Asian market, where China and India were expected to drive future global demand growth.
Saudi Arabia produced about 8.1 million barrels of crude oil per day in November, a Reuters OPEC survey showed. Oil output from the largest non-OPEC producer Russia has reached record highs this year, staying above 10 million bpd since October. Russia exports medium-heavy Urals crude to Europe.
WORLD REFINERY DEMAND FOR HEAVY CRUDE UP
Refinery demand for heavy crude, which is normally priced lower than light crude due to its poor quality, has increased over recent years due to the industry trend to build advanced refining units to convert the cheap crude to value added products such as gasoline and diesel.
As a result, the value of heavy crude oil has risen more sharply than light, high quality crude this year.
Some oil industry officials and traders said Saudi Heavy crude has become more expensive than other grades which can be purchased in the European spot crude market.
None of the Saudi crude oils are tradeable in the spot market and their prices are fixed by official selling prices (OSPs) expressed as differentials to regional benchmarks.
In contrast to Europe, most refiners in East Asia said they were being supplied with Saudi Heavy in full contracted volumes for January. (Editing by Simon Webb and Anthony Barker)
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Source: http://www.forbes.com/feeds/reuters/2009/12/18/2009-12-18T170823Z_01_LDE5BH1SC_RTRIDST_0_EUROPE-OIL.html
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