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EGYPT - Crude Oil Pricing & Marketing.

The current system, applied since the beginning of 1996 by EGPC's Foreign Trade Department, simplifies the monthly pricing of Egyptian crude oils and pegs them to dated Brent, rather than to a basket of crudes. The main export crude oils are six sour grades: the 32[degrees] API Suez Blend, Ras Al Bihar and Zeit Bay - produced in the Gulf of Suez (GOS), with BP's GOS output averaging 215,000 b/d and its Western Desert production stabilised at 20,000 b/d; the 26[degrees] API Balayim and Ras Budran produced in Sinai; and the 24[degrees] API Ras Gharib. Suez Blend (SB) is the marker crude for export pricing.

Prices of light/sweet crude oils produced mainly in the Western Desert are also tied to dated Brent on monthly basis. The volume of light/sweet crude oil exports has declined because most of them are being refined locally.

In the pre-1996 formula, introduced in October 1991, EGPC used to price SB every two weeks as follows: 60% at a minus differential to dated Brent; 20% at a minus differential to spot market quotations for Iranian Heavy (31[degrees] API, with 1.7% sulphur), fob-Sidi Kerir; and 20% relative to spot market quotations for SB. That was aimed primarily to stabilise official prices. It satisfied trading firms in the initial phase and brought EGPC new customers. But it upset many of EGPC's E&P partners as the official price was often out of pace with market fluctuations. But from Jan. 1992, EGPC switched from fortnightly to monthly price adjustments, which eventually upset EGPC's trading clients as well. Official prices were then announced 10 days before the start of each month.

At times official prices fell below those of the spot market and the monthly reviews often came too late. At other times official prices were above those of the spot market, with some term clients declining to lift and leaving EGPC with surplus crude oil. EGPC's foreign partners had to absorb that formula into their own sales networks, and occasionally their loss of price opportunities was considerable.

The SB discount to dated Brent hit a minus $3.30/barrel in July 1993 and fell subsequently to reach $1.60/b in April 1994 and less than $1/b in December 1995. The discount to Iranian Heavy was stable at minus 50 cents/b in 1992-94 due to its weakness. But by then, NIOC had stopped allowing Iranian crudes to be traded on spot basis and its shipments through the Sumed pipeline to Sidi Kerir had dropped sharply. In fact it was partly due to the weakness of Iranian Heavy crude that EGPC adopted dated Brent as its sole marker from the beginning of 1996.

EGPC markets all its crude oil export entitlements and the surplus of heavy fuel oils produced by the local refineries. Its sales are on the basis of term contracts tendered annually or half-yearly. It also markets certain quantities of crudes on behalf of E&P partners.

EGPC's Foreign Trade Department, in charge of marketing, has a team of experienced negotiators who work closely with a pricing committee (see who's who in Part 4).

Exports of SB and other Egyptian crudes have to compete with Russia's Urals and Iranian Heavy in the Mediterranean market for sour grades. This market, estimated at nearly 3m b/d, is very tight at present and sour crudes are in short supply. This is because of a jam of tankers along the straits of the Bosphorus and Dardanelles - so there is a shortage of Urals from Russia, the biggest oil supplier to Europe - and continuing absence of Kirkuk from northern Iraq and the Turkish terminal of Ceyhan. As a result, spot prices of sour crudes have risen close to the level of dated Brent. At one time this week the spot price of Urals had a premium over dated Brent. For years, Urals has been the most actively traded sour crude in the Mediterranean spot market.

At one time this week the spot price of SB reached $30.08/barrel. Its spot price averaged $27.58 in the fourth quarter of 2003, $26.84 in the third quarter, $24.22 in the second quarter and $29.10 in the first quarter. To compare, the price of dated Brent averaged $29.89/barrel in the fourth quarter of 2003, $28.36 in the third quarter, $26.16 in the second quarter and $31.41 in the first quarter.
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Publication:APS Review Oil Market Trends
Date:Jan 19, 2004
Previous Article:EGYPT - Part 3 - Exports; Gas Will Overtake Oil In Revenue.
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