Large hikes in OSPs by Persian Gulf producers for heavier Middle Eastern sour crude grades in the latest round have caught some traders off guard, traders said Thursday.
However, hikes in OSPs for lighter grades were in line, they added.
On Tuesday, Aramco hiked its OSP for Arab Heavy to Asia by 70 cents/b from June to a discount of 65 cents/b to the average of Oman/Dubai in July, according to a company notice seen by S&P Global Platts.
This was a high not seen since August 2012, when it was at a discount of 30 cents/b, Platts data showed.
The increase was the largest among all of Saudi Aramco’s crude OSPs bound for Asia. The Arab Medium OSP, for instance, was raised by 40 cents/b to a premium of 35 cents/b to Oman/Dubai, while the Arab Light OSP was raised by 20 cents/b to a premium of $2.10/b to Oman/Dubai.
Other Persian Gulf producers such as ADNOC and Qatar were also seen giving bulkier increases to their heavier grades while easing off on their lighter grades.
“We are getting to some historically high numbers for OSPs,” a sour crude trader at a Western oil firm said.
Traders pinned the hikes mostly on tighter exports of heavier crudes in the coming months. Persian Gulf producers were expected to reserve more of their heavier barrels for domestic, direct-burning purposes.
Moreover, fuel oil cracks have been on the upswing in the last month, giving producers more leeway in raising OSPs for residual-rich grades.
The M2 Singapore fuel oil crack spread against Dubai crude has risen by more than $4/b since end April to touch nearly a four-month high of minus $4.29/b as of 4:30 pm Singapore time Wednesday.
It was last higher on February 14 when the crack spread was at minus $3.84/b.
“We’ve seen fuel oil cracks getting higher recently,” a Chinese sour crude trader said.
Still, the scale of the increases meant that premiums were expected to soften for these grades once they start trading on the spot market.
“Big shock on the flip-flop for the Arab Heavy and Light. It’s going to strip away the value when they start trading,” a sour crude trader at a Western trading house said.
VENEZUELA OUTAGE TO BENEFIT PG PRODUCERS
Recent supply shortages in Venezuela could also possibly benefit Persian Gulf producers.
An official at Venezuela’s PDVSA had told Platts Monday that the company had notified 11 international customers that it will not be able to meet its full crude supply commitments in June.
Most of the affected crude is Venezuela’s Merey 16 grade, a mix of light crude and extra-heavy crude from the Orinoco Belt.
China’s independent refiners, a major buyer of Venezuelan heavy crudes for asphalt production, are among those affected.
Chinese independent refineries took 4.68 million mt of Merey shipments over January-May, accounting for 88% of all Venezuelan arrivals for the sector, a Platts survey showed.
While Middle Eastern heavy and sour grades have not been discussed as alternatives — Chinese traders have raised Mexican Maya, Colombia’s Castilla and Canadian Cold Lake Blend as options — the disruption is nonetheless making supply look tighter for heavy grades in the market.
“Venezuela is out. Supply in the heavier market will be tighter,” a crude trader at a Middle Eastern company said.
One of the impacted international customers in Asia of the Venezuelan crude shortfall said they won’t have any issues as they have been diversifying their crude sources.
Sources said the sharp increases for Saudi heavy grades will likely flow down to Iraqi crude OSPs for July, expected to be released in the coming days.
The crude trader at the trading house said Iraq’s State Oil Marketing Organization is expected to raise the Basrah Heavy OSP by around 70 cents/b and the Basrah Light OSP by 30-40 cents/b.