ADNOC placates crude traders with hopes of further price cuts

Tanking prices for ADNOC's crude grades trading in the Middle East sour crude spot market rebounded sharply Thursday after the group's CEO addressed market concerns about less-than-satisfactory price cuts compared with those provided by Saudi Aramco and other producers in the region.

ADNOC, which currently prices its crude on a retroactive basis, is in the process of transforming the way it prices its four crude grades to a new futures-linked pricing methodology.

"In response to market conditions, and to provide better forward visibility to our customers, ADNOC will shortly announce forward prices for the months of March and April 2020," CEO Sultan al-Jaber said in a statement Wednesday.

Bids placed by traders Glencore and Gunvor in the Platts Market on Close assessment process Thursday put spot price differentials for Murban and Das Blend on an upward trajectory and away from minus $2/b levels being quoted by buyers earlier in the day.

No selling interest was seen for the bids despite the sharp uptick in prices. Earlier this week, a similar May loading cargo of Murban had changed hands at a discount of $2.10/b under the OSP.

Sellers were likely holding back their May inventory of ADNOC crudes on hopes that further price cuts would enable them to fetch better value for May barrels in the spot market.

"The market is waiting for ADNOC to issue prospective OSPs," said a Singapore-based crude trader on Thursday, following the remarks by ADNOC overnight.

"If those come in on time with satisfactory corrections then there is hope for ADNOC grades" to trade at better prices.

At the same time, traders spoke of the need for further clarity from the emirate about the promised March and April OSPs.

"It's already [March 12] so unless they do something today people will move on," said a second crude trader.

Price cuts equivalent to Saudi Aramco's $6/b drop for the Arab Extra Light OSP differential could see the market value of ADNOC's grades rebound from minus $2/b levels to at least parity, or possibly even small premiums, said market participants.

"One scenario is that they [ADNOC] have to make [the combined February, March and April OSP cuts] add up to minus $6/b to match the Saudis, versus their minus $1.60/b," explained the second trader.

"So they could cut $2 for each month [March and April OSP] and then Murban value would be flat."

Earlier this month, ADNOC issued OSPs which saw the February price differentials of its grades fall minus $1.63/b against Platts front-month Dubai crude assessments.

ADNOC's prices were found lacking compared to $5/b to $6/b price cuts issued by most other Middle East producers for April loading cargoes, with market participants balking at the uncertainty of waiting two more months for ADNOC's April OSPs to be revealed.

"With ADNOC grades right now, there is a risk and I am not sure people want to hold that risk for much longer," the second trader said.