Saudi Aramco set to cut November PSOs amid falling demand and rising crude

Saudi Aramco and other Middle Eastern producers are expected to cut official selling prices, or OSPs, for crude loading in November due to weak supply and demand fundamentals leading to a sharp correction of Platts Dubai benchmark differentials in September, traders told S&P Global Platts.

This month, a further reduction in prices of 30 to 50 cents / bbl for all grades of crude could boost the interest of refiners in the region to buy, market sources said.
The Dubai futures spread – seen as a key feature in OSP calculations – averaged $ 1.42 / bbl in September, sliding 80 cents from an average of $ 2.22 / bbl in September. August, according to data.

“I guess a reduction of 30 to 50 cents [expected]. Looks like PSOs haven’t corrected enough, ”said a trader in Singapore.

“[For] Arab Extra Light, I feel cut at 50 cents / bbl. For the lights you always have [see] Murban, but it went down. They [Aramco] AXL and Murban prices closer, ”said a trader from a Southeast Asian refinery.

In September, Saudi Aramco slashed the prices of its October loaded crude to Asia from $ 1 to $ 1.30 / bbl, far exceeding Dubai’s monthly cash-to-paper gap decline that was down 13 cents / bbl in September from August, according to Platts data.

While the cut in PSOs pleasantly surprised market participants, calls for a cut were gaining more traction as high crude prices and a dismal buying appetite tormented buyers in Asia, traders said. .

“In general, you see the March PSOs, the Saudis did not follow [Dubai futures spread] always formula. i think last month [September] reduction was compensation for the previous months, ”said a trader at a North Asian refinery.

Meanwhile, surging gas and coal prices ahead of the winter season could revive demand for certain grades of medium and heavy crude which saw lackluster demand in September, the South Asian refinery trader said. .

“Gas is expensive, they can go for oil heating. A heavier drop will be less maybe 30-40 cents / b [or] maybe even 30-25 cents / bbl, ”said the same trader.

380cst oil cracks averaged minus $ 5.22 / bbl in September, down from minus $ 6.10 / bbl in September, while 180cst oil cracks averaged minus $ 3.05 / bbl. in September, down from minus $ 4.59 / b the previous month, according to the data.

Demand signals in Asia remain stable and focus mainly on key economies – China, Japan and India.

As demand from China could increase amid expectations of more import quotas for independent refineries, Japanese purchases could remain stable despite the start of the winter season as well as the announcement of the lifting of COVID restrictions. -19 next month.

“I think China could pick up quickly with new quotas in China in Q4 and SEA [Southeast Asia] back to normal after COVID-19 lockdown, ”said a second trader in Singapore.

Indian demand is also expected to remain broadly stable with the holiday season approaching, although a third wave of the COVID-19 pandemic may limit appetite for oil imports, sources said.

Cash buying activity in September was capped despite the sharp reduction in PSOs by producers in the Middle East, traders said.

With most Asian refiners receiving futures supplies for October, any hope of increased spot buying has been dashed in the bud again, the Singapore trader said.

“The spot market could be favorable next month [so] a drop [in OSPs expected] for sure to incorporate the spot demand. 30-40 cents / bbl [cut] for the lights [at least]”said the North Asian refinery trader.

Product refining cracks have also weakened, another trader in Singapore said, supporting lower prices for lighter crudes.

“The cracks are weak, but maybe lighter grades will have more value in the fourth quarter,” the third trader in Singapore said.

According to Platts data, gasoline cracks in the second month averaged $ 8.75 / bbl in September, down from $ 9.30 / bbl in August.

The differentials for the lighter grades of ADNOC, Umm Lulu and Das Blend, could change little from Murban’s OSP, traders say.

Upper Zakum’s spread to Murban could widen next month to around $ 1 / bbl from 60 cents / bbl this month, a trader at a European oil major said.

“His [the] very delicate part. The gap has really widened in recent days, ”the trader said.

In September, the spread between Murban and Upper Zakum averaged around 73 cents / bbl, more than double the gap of 36 cents / b in August, according to data from Platts.
Source: Platts