ADNOC's June crude OSPs in line with market expectations as IFAD era begins

Singapore — Abu Dhabi National Oil Co. issued official selling prices for June-loading crude -- the first since the launch of the Murban Futures contract on the ICE Futures Abu Dhabi, or IFAD, exchange -- with the OSP differentials for the secondary grades deemed within market expectations, sources told S&P Global Platts.

The June OSP for its flagship Murban crude was set at $63.35/b while prices for the remaining grades sold by the producer are set against the price of Murban crude.

The June OSP differential for Umm Lulu was set at a discount of 5 cents/b to the Murban OSP, or equivalent to $63.30/b.

Meanwhile, the June differentials for Das Blend and Upper Zakum were set at discounts of 35 cents/b and 40 cents/b, respectively, to the Murban OSP, bringing the respective prices of the grades to $63/b and $62.95/b.

"[The prices are] quite reflective of the market. In fact, Murban [price] is better than physical trades [in the spot market]," said a trader with a South Asian refinery.

ADNOC sets the Murban OSP basis the monthly average of the IFAD Murban Singapore marker first line futures, which trades two months ahead of the month of loading.

Benchmark cash Dubai assessed by Platts averaged at $62.89/b over April, 46 cents/b lower than the IFAD Murban average of $63.35/b in April. ADNOC, meanwhile, had set the June OSP differential for Upper Zakum at a 40-cents/b discount to the June Murban OSP.

The IFAD differential to Platts front-month Dubai averaged $1.49/b for the whole of April, having touched a high of $1.86/b on April 14, before weaker demand saw the gap narrow considerably to a premium of 8 cents/b at close April 30, the last day of the trading month, Platts data showed.

"Murban's price somehow reasonable for the whole month average compared to other [ADNOC grades]. I don't think it is a $1.80/b [premium] market at all," said a trader with a North Asian refinery.

Meanwhile, differentials for other grades are deemed in line with current market activity and demand cues, traders said.

Spot buying activity eased in the latter part of April as key Asian economies like India, Japan and Thailand struggled with surging COVID-19 cases, hurting demand for oil and refined products. This, according to market participants, will weigh on sentiments for July-loading barrels and may result in Middle East producers adjusting OSPs, accordingly.

Focus on Saudi prices

While the issuance of ADNOC OSPs before de-facto market leader Saudi Aramco is in response to the former's move to a futures exchange-based pricing, some traders suggest that the issuance of ADNOC's OSPs at the very start of the month could weigh on Aramco's pending decision on prices for its crude grades.

"I like their attitude. They are [trying to be] the benchmark producer," said the crude oil trader with the North Asian refinery.

A transparent pricing system adopted by ADNOC is a clear indication of the current market scenario, sources told Platts.

The cash Dubai premium over same-month Dubai futures spread -- understood to be a key element in OSP calculations -- fell 15 cents/b to an average of $1.04/b in April, down from an average of $1.19/b in March, Platts data showed.

"Dubai structure fell 15 cents/b and [ADNOC] applied. They want to be transparent. Now Saudi setting up [of prices] will be influenced by ADNOC numbers," said the trader with the South Asian refinery.

A sharp hike in prices last month left the market miffed and Saudi would need to correct that given the overall demand scenario emerging in Asia, traders said.

"I feel Arab light and Extra light will be under pressure. Saudi still sets its OSP based on their internal forces and not purely by market forces," said the same trader.