Analysis: ADNOC's crude price cuts miss the mark for Asia's refiners

Singapore — Price cuts from Abu Dhabi National Oil Co. for crude loading in February failed to make much of an impression within the Asia crude industry after Saudi Aramco's jaw-dropping cuts over the weekend, industry sources and traders told S&P Global Platts Tuesday.

"ADNOC may have used the retroactive card and cut double of where their grades traded in the spot market last month, and normally this would work, but we are not in a normal situation right now, with Saudi whacking their prices down six dollars," a buy-side source in Singapore said.

The UAE company slashed outright official selling prices for all of its four grades by $11.70/b month on month in a notice issued late Monday.

But on closer inspection, the grade's OSP differentials to underlying Dubai crude assessments were cut by only $1.63/b, compared with $5/b and $6/b cuts for Saudi grades to Asia.

"On a North Asia delivered basis, Murban landed price is now around Dubai plus $2.90/b basis the current OSP differential. Arab Extra Light is Dubai minus $1.90/b for the same," a crude trader said, highlighting a $4.80/b difference for buyers between the two light sour grades.

However, the price comparison was made between February loading Murban and April loading Arab Extra Light, based on the latest OSP differentials available for each.

Market participants pondered the likelihood of ADNOC staggering an equivalent price cut to Aramco's $6/b deliverance in the two-month time lag between its February OSP and the April Saudi OSP.

Time lag

The time lag carries the risk of market dynamics changing between now and May -- when ADNOC's April OSPs will be due, market participants said, with no assurance that the end result would match the Saudi price cut. This would disincentivize buyers from committing to buy ADNOC barrels in place of Saudi crude, they said.

"There is no guarantee how they will cut [prices] next month, and it spells two more months of uncertainty for their grades," the trader said.

ADNOC issues its OSPs retroactively -- for the month of loading preceding the current calendar month -- while Saudi Aramco issues them on a forward-looking basis, for the month of loading following the current calendar month.

The company's $1.63/b cut is roughly two times the discounted range in which its grades traded last month. April loading cargoes of its light sour crudes Murban, Das and Umm Lulu traded at discounts ranging from 60 cents/b to more than $1/b against the OSP.

ADNOC's medium sour Upper Zakum crude traded at around minus 70 cents/b to minus 85 cents/b under its OSP in February. Several Upper Zakum deals were also reportedly done using Platts front-month Dubai crude assessments as the underlying reference, instead of the grade's own OSP.

Upper Zakum is one of the five deliverable grades in the Platts Dubai partials basket, as is Murban.

ADNOC said Monday in its OSP notice it "has always set a fair and reasonable retroactive price for its crude oil that is consistent with market conditions. This practice will continue."