Aramco's May, Asia-bound crude OSP hikes in line with expectations: traders

Saudi Aramco's 30-50 cents/b hike in its May, Asia-bound crude oil official selling price differentials were mostly in line with expectations, Asian sour crude traders said April 8, with the larger increases for heavier grades reasonable given tighter supply of such crudes lately.

Aramco in an late-April 5 notice raised the May OSP differential for its flagship Arab Light crude for Asia to a premium of $2/b to the Oman/Dubai average, up 30 cents/b on the month.

The Asia-bound OSP differentials for the Medium and Heavy grade were raised by 50 cents/b on the month for May, the largest increase among all five grades. The Extra Light OSP differential meanwhile was raised by 40 cents/b on the month, while that for Super Light was kept steady on the month.

Several Asian traders said the May OSPs were in line with expectations.

"Basically in line with market," one trader said.

A second trader added that the May Arab Light OSP this time had largely tracked the month on month change in the front-month Dubai cash-futures spread, which had averaged 27 cents/b higher on the month in March, compared to prior months when larger deviations were seen.

Medium and heavy sour crude supply has been tighter in recent weeks, driven by oilfield maintenances in the Middle East, lesser exports of Upper Zakum crude from the UAE due to ADNOC's Crude Flexibility Project, and lesser availability of destination-free Basrah cargoes from Iraq, likely giving Aramco greater leeway to raise the OSPs its Medium and Heavy grade.

The tightened supply has seen the front-month Dubai cash-futures spread in April averaging at their highest levels in six months -- at a premium of $2.29/b up to April 5, up 98 cents/b on the month from the March average and a high not seen since October 2023 when it was at a premium of $2.65/b.

Nonetheless, traders said that the soaring sour crude cash differentials will have to cool off eventually as the strong differentials, coupled with rising flat prices, has led to sharply weaker margins for refiners.

The Singapore cracking margin against Dubai crude last week slipped to a five-month low of 30 cents/b April 2, S&P Global Commodity Insights data showed, though it has since recovered slightly to be assessed at 76 cents/b April 5.

In comparison for March, the cracking margin had mostly been assessed in the $2.50-$4/b range, the data showed.

"Market looks bullish, but margins tell a different story," one trader said.