Saudi Aramco, the largest oil producer in the Middle East, kept the official selling prices for all of its Asia-bound crude oil grades unchanged for March, largely in line with market expectations, traders told S&P Global Platts Feb. 5.
Aramco kept the March OSP differential for its Arab Light crude steady from February, when it was set at a six-month high of $1/b premium against Platts Dubai and DME Oman, Platts data showed.
Similarly, the March OSP differentials for Super Light, Extra Light, Arab Medium and Heavy grades were kept unchanged from the five-month highs of $1.85/b, 75 cents/b and 30 cents/b, respectively, against Platts Dubai and DME Oman in February.
The company had raised the February OSPs after announcing that it will voluntarily cut its production by 1 million b/d in February and March to support oil prices and avoid a supply glut.
“No change in prices was expected as the formula dictated a rollover,” said a trader in Singapore.
A key price indicator for the Middle East sour crude market — the cash Dubai-futures spread — averaged at a premium of 48 cents/b in January, down from an average premium of 56 cents/b in December, Platts data showed.
In the run up to the issuance of OSPs, sources expected a rollover or cut in prices with some hoping a nominal increase for lighter grades due to increased buying preference in January.
“Japan bought a lot of lighter grades last month. But volume wise they were around the usual levels,” said a trader.
However, some market participants also expected cuts across all OSPs given the softening demand among Asian economies due to the coronavirus outbreak leading to a dip in domestic production.
“Surprised at these OSPs. Surely expected a cut on lighter grades or even Arab Medium and Arab Heavy,” said a trader with a South Asian refinery.
Doubts about Asian demand for Middle East crude remain high amid tepid buying intent from key Asian economies on the back of peak refinery downtime season, further aided by the COVID-19 outbreak.
“We are in a peak turnaround season now, especially in North Asia. Japan bought a lot last month but I don’t expect the same this month,” said a crude oil trader.
As trade for April-loading cargoes awaits official kick off, eyes are now on Chinese demand to sustain Asian buying appetite and resurrect the spot market.
However, as the country battles a resurgent virus and the Chinese New Year holidays draw closer, demand from the country seems sluggish.
“First half of next week is crucial and then China enters into the festive holidays. If not next week then we will have to wait for post-holiday period to see spot trades,” said a trader with a North Asian refinery.
Apart from refinery maintenance and the pandemic outbreak, the threat of arbitrage barrels blunting demand for Middle East crude remains a lingering issue for the market.
“Decent amount of arbitrage crudes for March-loading [are] still available in West Africa. Heard South Korea has been buying too,” said a trader in Singapore.
Indian refiner, Indian Oil Corp., issued a tender for purchase of various crude grades including the US, West African and Middle East crudes for April-loading. The tender closes Feb. 5 and has the same-day validity.
“Volumes for Chinese-preferred arb grades like Brazilian and Angolan have reduced, which makes it economical for India to buy,” said another trader with a South Asian refinery. “Also, some Mediterranean and West African crudes have become cheaper so India will buy more of those.”
With the Dubai structure on the uptick, arbitrage crudes present themselves as an enticing economical option to buyers, traders said.
With the release of Aramco’s OSPs, the focus now shifts to the release of OSPs by other key producers including Abu Dhabi’s ADNOC, Iraq’s SOMO and Qatar Petroleum, which are expected early in the week of Feb. 7.
“ADNOC will do the same as Aramco. It’s like following the leader so expect something on similar lines for the others,” said the trader in Singapore.