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Analysis: Qatari pricing overhaul lowers pricing risk for Middle East crude market

Qatar’s recent switch to a forward pricing mechanism for two key crude grades — Qatar Land and Qatar Marine — has been hailed as a welcome move by market participants in Asia, who have long desired that the crude grades they buy from the Persian Gulf be set along the same baseline for lower pricing risk and easier comparison.

“Between retroactive and prospective, we would rather look at the latest [March-loading] figure” for the Qatari grades, the head of a crude trading team based in Singapore said.

Spot trading of crudes priced after the month of loading “comes with a significant risk of exposure to retroactive pricing,” a trader with a South Asian refiner had said of the situation.

A forward-pricing mechanism in step with the likes of Saudi Arabia, Kuwait and Iraq, provides greater transparency by eliminating risks associated with two different pricing timelines, they added.

Additionally, Qatar’s new pricing formula will reference the average of Platts Dubai and Oman assessments, similar to price differentials set by other producers.

These two key changes will enable buyers in Asia to compare March Qatari crude price differentials directly against most other Middle East crudes and is expected to give spot trading of Qatari grades a boost due to the ease of comparison.

For instance, Qatar Land’s last price differential based on its old formula was set at $67.70/b for crude that loaded over January. Typical market practice in Asia would be to calculate the difference between the outright value of the Qatar Land OSP and Platts Dubai crude assessments over January to obtain a differential, which in this case amounted to $3.41/b. This was regarded as an incomplete comparison against the most recent Saudi crude OSPs, which were issued for March-loading cargoes earlier this month.

However, with the revamped formula, market participants on Tuesday were able to directly quote and compare March-loading Qatar Land at $2.40/b over Platts Dubai and Oman assessments, versus Saudi Aramco’s $2.90/b for Arab Extra Light:

“Looks okay, they kept Qatar Land well under Arab Extra Light for March,” a refiner based in East Asia said.

Others, meanwhile, had a different view enabled by a direct comparison against other March OSP differentials: “Comparing with Arab Extra Light or Kuwait Super Light crude, it’s not looking competitive,” a seller based in Singapore said.

Qatar on Monday announced a major revamp of its crude pricing formula, and one of the changes is that prices will now be issued one month ahead of scheduled cargo loadings. This month it issued price differentials for Qatar Land and Marine cargoes that will load over the month of March.

The move comes after months of deliberations with Qatar’s term customers and equity holders based in Asia, and after much encouragement from the market, traders told S&P Global Platts.

Previously, the company announced monthly OSPs as outright values, the month after a cargo loads.

The entity announced OSPs for January loading cargoes earlier this month, and will continue to do so until March, in an effort to pave the way towards a smooth transition for its Asian customers.
Source: Platts

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