Saudi Aramco may make modest tweaks, if any, to its December Asia crude oil official selling price (OSP) amid consensus for a rollover but there are arguments for the light grades to be cut and the heavies to be raised due to the forward spreads and strong fuel oil margins, market participants said.
Aside from a likely rollover across the board, Aramco could cut December Arabian Light (AL) and Extra Light (AEL) by about $0.20/bbl due to a wider Oman/Dubai spread with the Dubai M1-M3 contango deepening by about $0.05/bbl on-month, they said. On the flip side, the world's largest crude exporter may raise Arabian Medium (AM) and Arabian Heavy (AH) by a similar $0.20/bbl, they added.
Benchmark Singapore fuel oil refining margins, or crack to Brent, rose to minus $0.20/bbl on Monday compared with minus $4.10/bbl on Oct. 2, according to OPIS data, which sources said may entice Aramco to raise the OSPs for Medium and Heavy. But at the same time, the Oman-Dubai spread has widened by about $0.35/bbl, which may lead to a cut in OSPs by half that amount to spare term buyers who hedge using only Dubai swaps.
“It is hard to call this month, the structure is fairly flat. It depends largely on how you assume the product yields are for each crude,” said one trading source, adding that Aramco would also have to look at overall demand/supply fundamentals to ensure that they don’t price their crude out of the incremental market.
In its November OSP, Aramco raised its biggest AL crude by $0.10/bbl, putting it at a $0.40/bbl discount to Oman/Dubai, according to a price list. EL was increased by $0.20/bbl and Super Light by $0.30/bbl, pricing them at a $0.60/bbl discount and $0.85/bbl premium to the marker on the back of improved gasoline and naphtha margins.
The OSPs for AM and AH, on the other hand, were kept unchanged from October, according to the price information. The December OSPs are due sometime this week.
This time around the expectations for a role reversal in the price adjustments have emerged due to strong fuel oil margins and demand going into the winter heating season with many power stations in Asia and the Middle East still relying on residues.
Saudi Arabia will have to price its crude oils such that they remain competitive in Asia as the kingdom jostles for top place at its biggest buyers including China where it last month wrestled back its position as the largest supplier after coming in second to Russia for two consecutive months, the sources said.
Saudi Arabia Crude Oil Exports By Destination
The world’s largest crude oil importer raised its purchases from Saudi Arabia in September, taking in 7.78 million mt, or about 1.9 million b/d from around 1.25 million b/d in August, according to data from China’s General Administration of Customs (GAC). However, Russian exports remain high at 7.48 million mt and it still ranks as the biggest supplier on a year-to-date basis.
The startup of the 400,000 b/d second phase of the Zhejiang Petrochemical (ZPC) means that Aramco will target to have its barrels in there instead of parent Rongsheng picking up huge amounts of incremental cargoes from the spot market like it did in the purchase of about 15 million bbls via two spot tenders for December/January arrival, they added.
Despite recent tenders to buy Caspian, West African and even U.S. crudes to meet fast rising refinery runs, Indian refiners are likely to take their full term entitlements, or more, from Aramco due to their large appetite, the sources said.
Saudi Arabia held on to its top spot in Japan even as refiners shuttered units and reduced run rates. Crude oil imports in September dropped 22.6% on-year to 10.21 million kl, or 2.14 million b/d. Shipments from the kingdom fell by a smaller 13.1% to 4.09 million kl, data from the Ministry of Economy Trade and Industry (METI) showed.
Another major buyer, South Korea raised its purchases from the kingdom for September arrival at 3.2 million mt, or about 780,000 b/d, up 12.7% on year, according to the customs data, on the back of a modest 1.5% gain from a year ago at 10.63 million mt. Refiners are scaling back runs due to poor margins amid recent bumper crude purchases from long-haul sources such as the North Sea.
South Korean imports in October, the first such data to be published among major Asian importers, fell by 1.7% from a year ago to 2.61 million b/d, according to preliminary figures from the Ministry of Trade, Industry and Energy.
“Their last OSP was attractive to China, so it could be another sign that Aramco might keep it flat. There are India and Japan to consider for the next loading too,” a source said.
--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;
--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com
Copyright, Oil Price Information Service
