Middle East sour crude price cuts for Asia in line with expectations: survey

Singapore — The latest round of official selling prices slashed by producers of Middle East sour crude in response to weaker market indicators fell largely in line with readjusted OSP expectations in Asia, crude market participants surveyed by S&P Global Platts said Thursday.

"Basically quite a fair cut -- light/heavy spread is narrower as expected," said one trader based in Singapore.

Prices released by Saudi Aramco and Abu Dhabi National Oil Company earlier this week showed the producers had adjusted their prices downward by a few extra notches to account for the recent collapse in oil markets, survey participants noted.

Saudi Aramco cut the official selling price differentials for four out of its five crude grades loading in March and flowing to Asia, the company said in a notice late Wednesday.

It slashed the price differential for its Arab Light crude by 80 cents/b, and that for Arab Extra Light by $1.70/b from the February OSP differential.

The producer and de-facto OPEC leader also cut its Arab Medium crude price differential to Asia by 50 cents/b, whereas market expectations had initially pegged no change to a small cut of around 5-10 cents/b.

Meanwhile, UAE's ADNOC cut the price of its mainstay light sour Murban crude, with the Murban/Dubai differential coming down by 85 cents/b for the January OSP issued earlier this week. ADNOC issues its prices retrospectively, which is different from Saudi Aramco's prospective official selling price formula.

Price differentials of ADNOC's three other crude grades came down by similar amounts, with the Upper Zakum price differential to Dubai being cut 80 cents/b for January.

PRODUCERS MEET READJUSTED EXPECTATIONS

When surveyed late January for their OSP expectations, most traders and refiners had pegged light sour grades like Murban to see a cut of around 60 cents/b, Arab Light around 50 cents/b and small cuts for medium sour grades such as Upper Zakum and Arab Medium.

However, survey participants said they adjusted their views further downward within the first few trading days of February as the spread of the coronavirus led to estimates of sharply weaker demand from China, one of the biggest importers of Middle East crude oil.

Reports of Chinese refiners offering prompt February and March cargoes for resale on the spot market confirmed market concerns about slowing demand for the country. Oil demand was also expected to slow in Q1 2020 on the back of lower refinery run rates and flailing product margins.

According to S&P Global Platts Analytics estimates, nearly 900,000 b/d of oil demand could be knocked out from China in February, and 650,000 b/d in March, and the country could see a gross domestic product contraction of about 0.8% in Q1 2020 GDP.

QATAR OSPS "NOT REFLECTIVE" OF MARKET

Meanwhile, several traders in Asia pointed out that Qatar Petroleum's price cuts for the January retrospective Land and Marine OSPs looked out of touch with the rest of the lot.

"The QP OSPs are not in line with the rest of the market," said one refiner based in Southeast Asia.

The January Qatar Land OSP differential to Dubai was cut 60 cents/b month on month, while that for Qatar Marine was down 25 cents/b. At $67.70/b, the Qatar Land OSP is now at a 10 cents/b discount to light sour Murban, whereas it typically trades at a wider discount to the Abu Dhabi grade in the spot market.

Meanwhile, the Qatar Marine outright OSP of $67.20/b for January now stands higher than Upper Zakum, which was set at an outright value of $66.85/b by ADNOC.

Some traders said they would wait for Qatar Petroleum to issue its prospective OSP before evaluating spot market prices for its two grades.

The company announced in December that it would begin issuing prospective OSP differentials for Land and Marine crudes from February, and is likely to release the new March OSP differentials in the coming days, according to market sources.