Middle Eastern crude producers may cut Feb OSPs as Dubai structure narrows

Saudi Aramco and other Middle Eastern producers are expected to trim official selling prices for crude loading in February on the back of a weaker Dubai structure, though the extent of reduction could be limited amid sufficient demand among Asian refiners, traders told S&P Global Platts.

The largest producer in the Middle East, Saudi Aramco, as well as other Middle Eastern producers, could cut prices by $1.50-$2/b across all Asia-bound grades, sources said.

The Dubai futures spread -- a key element in OSP calculations -- averaged $1.52/b in December, plunging $1.86/b from an average of $3.38/b in November, Platts data showed.

The sharp drop in the Dubai futures spread has led to widespread consensus among market participants that February OSPs should be lowered across all grades and producers, though debate rages on regarding the extent of the price corrections.

"[Spot] premiums came off a lot this month, so they should have to factor that in too...but then again producers always like to increase prices sharply and not reduce," said a Singapore-based crude oil trader.

While OSPs should reflect the drop in the Dubai crude structure, producers could have limited incentive to issue OSPs cuts to the same extent given demand for crude in Asia continues to remain supportive, traders said.

"It's true that Saudi may not cut as much as needed to be competitive to spot trades, Saudi is quite protected from spot market volatility as most of their barrels are termed out, so they can issue any pricing they want," said a crude oil trader with a South Asian refinery.

Meanwhile, mixed views have emerged regarding the extent of cuts across varying grades, amid relatively stable product cracks across the barrel, sources said.

"Don't know how they will cut light versus heavy grades, hard to say, cracks are also largely stable across the board so it doesn't provide direction," said a crude oil trader based in Singapore.

Demand cues from Asia have largely shown resilience against the rising COVID-19 cases so far, sources said, which is expected to continue as countries push for vaccinations over lockdowns as the preferred measure to combat the new wave.

However, with refinery turnaround season approaching and an expected increase in OPEC+ output in the group's upcoming meeting on Jan. 4, sentiment in the market may take a bearish tilt, market sources said.

"Demand is quite sideways, China is slightly on the bearish side ...[and] there is Japan spring turnaround, other regions is status quo," said another Singapore-based crude oil trader.