Both Saudi Aramco and Abu Dhabi National Oil Company could lower the upcoming official selling prices of their respective grades in view of recent trades and weaker Dubai, Oman crude structures this month, traders said this week.
Saudi Aramco was expected to lower its August OSP differentials by between 10 cents/b and 30 cents/b from July levels to reflect the widening contango in the Dubai market structure, traders said.
The spread between front-line cash Dubai versus same-month Dubai swaps averaged minus 60 cents/b in June to date, compared with minus 44 cents/b in the whole of May, S&P Global Platts data showed.
The Dubai crude market structure is understood to be a key component in Saudi OSP calculations.
The spread between front-line cash Oman versus same-month Dubai swaps averaged minus 47 cents/b in June to date, compared with minus 33 cents/b in the whole of May, Platts data showed.
Competition from arbitrage barrels, particularly for the light sour crudes, would be another reason why Saudi Aramco might lower the OSPs of their crudes, traders said.
The Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent’s premium to benchmark cash Dubai, averaged 74 cents/b to date in June, compared with 78 cents/b in the whole of May — the narrowest since Platts started publishing the assessment in August 2011.
The EFS has been narrowing sharply this year as OPEC cuts tightened supplies of Middle Eastern medium, heavy sour grades, pushing up their values against sweet crudes in Northern Europe, making Brent-linked crudes more attractive to buyers.
However, some traders said that strong fuel oil cracks and steady demand for bunker fuel could point to further increases in Saudi OSPs for the medium, heavy crudes.
The second-month 180 CST and 380 CST high sulfur fuel oil to Dubai crude swap cracks averaged five-year highs of minus $1.37/b and minus $2.39/b so far this month, compared with minus $3.40/b and minus $4.48/b respectively in the whole of May, Platts data showed.
“Fuel oil cracks are very strong and that could be a supporting factor. But we have heard of Banoco Arab Medium trading at 50 cents/b discount [to Saudi’s Arab Medium OSP] this month … so they could cut [the OSPs for] the medium, heavy crudes,” a North Asian crude trader said, adding that the OSP adjustments earlier this month were above market expectations.
Earlier this month, Aramco raised the OSP of its Asia-bound Arab Medium crude by 65 cents/b to a discount of 65 cents/b to the Platts Oman/Dubai average in July — the highest since March this year when it was at a discount of 55 cents/b to Oman/Dubai.
It also hiked the July OSP of its Asia-bound Arab Heavy crude by 95 cents/b to a discount $1.85/b to the Platts Oman/Dubai average in July, the highest since January 2014 when it was at a discount of $1.80/b to Oman/Dubai, Platts data showed.
ADNOC OSP EXPECTATIONS
ADNOC, meanwhile, is expected to lower the June OSP differentials for its crudes by between 5 cents/b and 20 cents/b, although some traders suggested that the OSP differential for Das Blend crude could be raised by up to 10 cents/b.
The expected changes to the June OSP differentials were mostly reflective of the trades for the respective grades this month, traders said.
August-loading Upper Zakum crude cargoes most recently traded at a discount of around 55 cents/b to Dubai, traders said.
“Medium crudes were slow [to trade] this month. Fuel oil cracks and the Qatari conflict [could have been] supporting factors for medium [sour crudes] but Chinaoil offering Upper Zakum STS at competitive levels [earlier in the trading cycle] stopped momentum for the medium, heavy crudes,” a Singapore-based crude trader said.
Chinaoil had offered up to 2 million barrels of Upper Zakum crude for delivery via ship-to-ship transfer at Fujairah in the first half of August during the Platts Market on Close assessment process earlier this month. Trafigura bought 500,000 barrels of the crude from Chinaoil at a discount of 20 cents/b to the grade’s OSP in August on June 12.
August-loading Murban crude cargoes traded between a discount of around 5 cents/b and 20 cents/b to the grade’s OSP this month, while Das Blend traded at single-digit premiums to its OSP, traders said.
“OSP [differential] for Das will likely be raised [for June] as we didn’t see any trades at a discount this month,” a crude trader said, adding that he expected the OSP differential for Das to be raised by between 5 cents/b and 10 cents/b.
Another trader, however, said that she expected ADNOC to maintain the June OSP spread between Murban and Das at 60 cents/b from May.
Earlier this month, ADNOC lowered the May OSP differential for Murban by 20 cents/b from April, while the differential for Das Blend was lowered by 15 cents/b month-on-month, thus narrowing Das Blend’s discount to Murban to 60 cents/b from 65 cents/b from April OSPs.
“Although the traded level [for Das] was at a premium, [it was] not [too] high. So I think to narrow [the spread] again will not help market the grade,” the Southeast Asian crude trader said.
ADNOC issues its monthly OSPs on a retroactive basis as a flat price, which is typically measured as a premium or discount to the average of Platts Dubai crude assessments for the month.
Both ADNOC and Aramco are expected to announce their respective OSPs in the coming week.