Saudi April OSP hikes reasonable in current volatile market: traders

Saudi Aramco hiked official selling prices for its Asia-bound crude higher than the rise in the Dubai structure last month though market participants deemed the increase to be within expectations, given the ongoing volatility due to the Russia-Ukraine conflict, sources told S&P Global Commodity Insights March 7.

Aramco, in a March 5 notice, raised the April OSP differential for Arab Medium by $2.15/b to a $4.90/b premium over the Oman/Dubai average and Arab Heavy rose $2.15/b to plus $3.55/b. Super Light into Asia was raised by $2.70/b to a $8.15/b premium, while Extra Light was increased by $2.30/b to a $5.90/b premium. Light was raised $2.15/b to a $4.95/b premium.

The prices for the Light, Medium and Heavy grades were at all-time highs since records began in 1989, S&P Global data showed.

"Given market volatility, Aramco's call is natural," a trader with a Southeast Asian refinery said.

The Dubai cash/futures spread -- a key element in OSP calculations -- averaged $3.87/b in February , soaring from an average of $2.16/b in January, S&P Global data showed.

While the hike in prices was higher than the rise in the sour complex structure, the ongoing supply crunch caused by the Russia-Ukraine conflict still makes the OSP hike by the OPEC kingpin easier to digest, a trader in Singapore said.

"Totally agree [on the hike as] not much alternatives for Asian refiners with Dubai so discounted to other benchmarks," the trader in Singapore said.

The Dubai complex continues to rally in March amid rising crude prices and growing concerns on availability of alternative barrels with fresh fears of sanctions on Russian crude increasingly gathering steam, sources said.

At the Asian close March 3, May cash Dubai versus same-month Dubai futures was pegged at a premium of $15.10/b, another record high after it closed at $11.96/b at close March 2.

However, Asian refiners are now eyeing term crude allocations by the producer with most expected to seek incremental volumes to soothe supply concerns, traders said.

"Today US announced they will consider to squeeze out Russian crude so in that situation any barrels are essential to supplement shortage of supply," a Japanese refining source stated.

The US State Department on March 6 stated that the Biden administration was discussing a potential ban on Russian oil imports in conjunction with its European allies in further response to Russia's invasion of Ukraine.

But doubts persist if Saudi Arabia can provide incremental crude barrels despite the OPEC+ alliance unwinding its production cut by 400,000 b/d for April, sources said.

"Up to [the] mercy of producers now. OPEC meeting went like there's nothing going on," a second trader in Singapore said.

Margins remain healthy

The higher prices by Saudi could also reflect refining margins that continue to stoke crude purchase appetite for Asian buyers, sources said.

"[OSPs are] not too far off based on product cracks," a trader with a Japanese trading house said.

"Margin is much higher too [so] refineries should be more than happy," a third Singapore-based trader said. "Gasoil and gasoline cracks at [an] all-time high."

Second-month gasoline cracks versus Dubai crude averaged $19.21/b in the month through March 7, up from $16.48/b in February and the highest since 2015, data showed.

Meanwhile, gasoil cracks versus Dubai crude averaged $20.03/b in the month so far, up from $17.44/b in February and also the highest since 2015, S&P Global data showed.

Product demand across all Asian economies continues to grow prompting refiners to seek more crude despite prices hitting multiyear highs, sources said.

The UAE's Abu Dhabi National Oil Co., or ADNOC, also issued official selling prices based on its Murban futures price settlement.

The April OSP for Murban was set at $93.99/b though the differentials for its light, sour Umm Lulu and Das Blend to the Murban OSP were unchanged from February at plus 5 cents/b and minus 40 cents/b, respectively.

For its medium, sour Upper Zakum crude, ADNOC widened its discount to the Murban OSP to $2.05/b, compared with a $1.55/b discount in March.

The widening of the Upper Zakum differential to Murban could reflect trades seen on the Platts Market on Close assessment process in February, sources said.

In February, the difference between Platts Murban and Platts Dubai crude assessments averaged $2.09/b, the data showed.