Qatari tender sets grim stage for April Middle East spot market

Singapore — Qatari crude tender cargoes were awarded to buyers at discounts and price cuts this week, a sign that the Middle East spot market is bracing for lean times ahead.

Tender results showed Thursday that Qatar's Land and Marine crudes were sold at firm discounts to awardees, as were two of the three Al-Shaheen cargoes available for sale.

For Al-Shaheen, the three cargoes averaged a premium of around 4 cents/b over Platts front-month Dubai crude assessments. One of the three cargoes was picked up by Indian refiner HMEL at a purported premium of 45 cents/b, several traders in the market told S&P Global Platts.

Market, however, largely focused on the discounts fetched by four of the five cargoes available in the tender, pegging the price paid by HMEL anomalous.

Refiners may sometimes pay extra premiums above market rates for specific loading dates or customized terms and conditions, they said.

"For Al-Shaheen the [tender] average is 4 cents/b and the highest is 45 cents/b, so there must be some discounts for the other two cargoes," said a source.

With an average of 4 cents/b among the three Al-Shaheen cargoes, the other two cargoes would have sold at discounts averaging 16 to 17 cents/b under Dubai.

The tender typically acts as a gauge for spot market sentiment for Middle East crude in Asia each month, with this month's award cementing a downward course for the April cycle.

Earlier this week, pre-tender cargoes of Al-Shaheen were reportedly picked up at premiums ranging between 25 cents/b and 35 cents/b over Dubai. At the time, the Dubai cash/futures spread was assessed at 6 cents/b February 18. Since then, however, the spread has fallen into a contango of minus 31 cents/b assessed Wednesday.

A price correction for Middle East sour crudes is inevitable, said traders, with market structure declining several months in a row. The Dubai cash/futures spread -- which acts as a proxy for spot market sentiment -- has lost about $2/b in value so far in February, averaging 17 cents/b to date. It was $2.11/b in January, and $2.67/b in December. Declining product margins and refinery run rates have translated to softer spot market demand, as evidenced by the spread.

First trades after pricing overhaul

Meanwhile, the Qatari tender was also closely tracked by the crude market in Asia as it offered insight into the country's upheaval of its official selling price mechanism in recent weeks. Starting February, Qatar has implemented a forward-looking pricing mechanism for Qatar Land and Qatar Marine crudes, offering market participants a chance to compare these directly with other widely quoted price references in the market, such as Saudi Arab Light and Extra Light crudes.

QPSPP had offered a cargo each of Land and Marine grades scheduled for April loading, which were heard to have sold at discounts ranging between 30 to 50 cents/b under Platts front-month Dubai crude assessments.

Traders said this was likely a market response to higher-than-expected official selling prices set by the producer earlier this month. The company set the March price differential for its Qatar Land and Qatar Marine grades at $2.40/b and $2.10/b over the average of Platts Oman/Dubai crude assessments.

Market participants at the time of the announcement had labeled the Land OSP as "too expensive" compared to Saudi Aramco's Arab Extra Light price differential of $2.90/b.

Platts records showed that the Qatar Land OSP averaged a discount of 45 cents/b under Saudi Arab Extra Light over 2019, and 98 cents/b under Abu Dhabi's light sour Murban crude.