Aramco expected to raise Mar crude OSPs but amount uncertain: traders

Saudi Aramco is expected to increase its official selling prices for crude oil headed for Asia in March, although the amount of the hike continues to leave the market guessing, sources told S&P Global Platts.

The region’s largest oil producer has constantly outfoxed the market with its price setting exercise over the past few months, and this month is expected to be of no exception, traders said.
The Dubai cash/futures spread — understood to be a key element in OSP calculations — averaged $2.16/b in January, up from an average of $1.52/b in December 2021, Platts data showed.

“Saudi didn’t follow [Dubai cash/futures] structure drop last month for February [prices and] will mostly compensate for last month’s lower drop,” a trader with a north Asian refinery said. Earlier this month, Aramco had cut the February OSPs by $1-$1.30/b against a sharper drop in the Dubai structure.

This time, Aramco and other producers are expected to hike prices by 30-70 cents/b across the grades amid strong demand cues and tighter supplies, various market sources said.

“Market is overall short [so] no incentive to price lower. If they price closer to structure then it will be good,” a trader with a South Asian refinery said.

Crude demand continues to remain sturdy globally and in most parts of Asia, despite the passing over of the peak winter season, while the omicron scare continues to fizzle out, the trader with the north Asian refinery said.

In Asia, demand from India and Japan is expected to remain steady next month while some concerns persist on Chinese demand, especially from the private refinery sector, the same trader said.

“Whatever happened with the new variant hasn’t made any significant impact [to India’s consumption and] not hurt oil demand,” the trader with the South Asian refinery said.

In China, private refinery demand continues to remain depressed while growing COVID-19 cases across the country could be a key factor, sources said.

Furthermore, with crude prices hitting multiyear highs, some China-based refinery sources said the government could release Strategic Petroleum Reserve stocks to tame prices.

“We [are] expecting an SPR release coming [and] looking at flat price, it’s time to release some stock. That’s one of the biggest concerns for the next cycle,” the same trader with the north Asian refinery said.

Tighter supplies globally also continue to push oil prices up with the effect expected to influence OSPs for Asia-bound crude too, a trader in Singapore said.

“Next month should be a higher [by around] 60-70 cents/b [as] cargoes are tight this time,” the trader in Singapore said.

Heavy crudes shine
While light, sour grades are expected to see higher price increases similar to previous months, traders said heavy, sour crudes could also get their place under the sun.

“Mexicans cut their exports [so] no more heavy grades supply. Middle [distillate] yields are better so this is good for medium and heavy grades,” the same trader in Singapore said.

Second-month gasoil swap cracks versus Dubai crude averaged $15.04/b in January to date, up from $12.77/b in December 2021 and the highest since December 2019 when it averaged $15.80/b, Platts data showed.

Stronger crack values and refining margins are also supporting the call for a price hike across grades this time, traders said.

“Thanks to good margin we might see a higher-than-expected [rise in] OSPs [and] heavies will be strong,” another trader in Singapore said.

Meanwhile, Abu Dhabi National Oil Co could also make changes to the price differentials of its crude grades for loading in March against the Murban OSP, sources said.

The premium for its light, sour Umm Lulu could stay static at plus $5/b to the Murban price or maybe at par, a trader with a Japanese trading house said.

“I’m not having a good feeling about Umm Lulu but I think they should stick to plus $5 [to Murban OSP]. Too much premium, then people will move to [buying] Murban,” the trader said.

For its medium, sour Upper Zakum crude, the trader said ADNOC could set its OSP similar to the values seen during the Platts Market on Close assessment process.

“They would stick to window value [MOC] but the value is not as bad, it’s around minus $1.50/b [to Murban],” the same trader said.

In January, the difference between Platts Murban and Platts Dubai crude assessments averaged $1.49/b, Platts data showed.
Source: Platts