Middle East crude producers expected to cut Oct OSPs by 80 cents-$2/b: traders

Middle Eastern crude oil producers were expected to cut their October official selling price differentials by 80 cents-$2/b, with the Dubai crude structure venturing into steeper discount this month, trade sources said in the week ending Aug. 28.

The benchmark front-month cash Dubai spread to same-month Dubai futures, or Dubai M1-M3 spread, has averaged at a discount of 65 cents/b in August to date, sliding from an average premium of 71 cents/b seen in July, S&P Global Platts data showed.

The spread is a key sour crude market indicator, tracked by Middle Eastern producers to define the core direction and extent of price hikes or cuts.

“I think they have to cut even more [for Oct OSPs] next month, especially for Saudi grades, hoping for $1/b decrease,” a sour crude trader based in Northeast Asia said.

Market participants are expecting Saudi Aramco to cut October OSP differentials for Asia-bound crude by $1-$2/b and ADNOC by a slightly lower 80 cents-$1.20/b. Both companies are expected to release their October OSPs in the coming days.

Earlier this month, ADNOC made a bigger cut to its September OSPs than Aramco. The September OSP for key grade Murban was lowered 90 cents/b from August, while Upper Zakum was cut $1.30/b. Aramco’s cuts for its September OSPs for Asia-bound crudes were between 30-60 cents/b. The move was not enough to lift the market, sources said.

“A dollar decrease would be a good downward correction for the market. I don’t think demand is coming back even as India did take more in the spot market this month,” a source from a Japanese refiner said.

LARGER CUTS EXPECTED FOR MEDIUM-HEAVY GRADES

Some market participants said the October OSPs for medium-heavy grades were expected to see larger cuts than the light grades.

The emergence of pockets of demand from Japan, India and Thailand for light sour barrels has lifted cash differentials slightly for these grades against their respective OSPs in August.

“Lighter grades seem to have a bit of upside due to the cracks,” a Singapore-based sour crude trader said.

The second-month 92 RON gasoline swap crack versus Dubai has averaged $2.76/b in August to date, edging up from $2.62/b in July, Platts data showed.

In contrast, demand for medium-heavy grades like Upper Zakum and Oman has been tepid in August, with little uptake heard from key end-user market China.

“Medium sour crude demand is bad and cracking margins [for middle distillates] are getting worse,” a source from a Chinese refiner said.

Cracks for jet fuel and gasoil remained weaker on the month, as a resurgence in coronavirus infections in some countries continued cap demand for transport fuels.

The second-month jet swap crack versus Dubai has averaged 51 cents/b to date in August, narrowing from $2.47/b in July, while the second-month gasoil swap crack versus Dubai has averaged $5.71/b, down from $6.71/b in July, Platts data showed.
Source: Platts