Global light crude shut-ins could prove supportive for Abu Dhabi's Murban prices in Asia

Singapore — Declining production of light crude grades globally could add momentum to UAE's production cuts in lending a supportive element to price differentials of Abu Dhabi's Murban crude in this month's spot market trading, traders told S&P Global Platts this week.

"Hearing Murban bids in premiums, around 50 cents/b premiums [to OSP]," a crude trader told Platts Thursday, which other market participants confirmed.

The latest buying sentiment is a drastic upswing from last month, and could provide important cues for light crude trading direction in the Asian spot market, which will see July loading Persian Gulf crude cargoes trade over May.

The front-month official selling price differential for Murban assessed by Platts averaged minus $1.40/b over April. The OSP differential rebounded toward the end of April after sinking to a month-low at minus $2.50/b early on in the cycle.

It was assessed at a premium of 25 cents/b on Wednesday.

LIGHT CRUDE QUALITY INVERSION

In April, June loading cargoes of the Abu Dhabi crude traded in discounts ranging from 40 cents/b to $2/b under the OSP.

Additionally, OSPs issued by Abu Dhabi National Oil Co last month inverted Murban's long-standing premium against typically lower quality crudes for the first time ever. ADNOC's May OSPs saw its medium sour Upper Zakum OSP at a 10 cents/b premium over Murban in April.

Earlier this week, ADNOC deepened that inversion when it set the June Upper Zakum OSP at a premium of 50 cents/b to Murban.

But now with spot market bids moving to premiums, the next round of OSPs could see Murban and other light crude grades recoup the quality inversion, depending on how trading carries out this month.

Murban is regarded as one of the most fungible Middle East crudes traded in the Asian spot market, and its pricing often acts as a leading indicator for other, light sour grades, such as Abu Dhabi's Das Blend and Umm Lulu, as well as Qatar's Land crude.

SHRINKING GLOBAL POOL

Production declines from WTI in the US and CPC Blend in Europe could shrink the global pool of light crude grades available to Asian refiners, leading in turn to incremental demand for Murban and other light sour grades loading from the Persian Gulf in July.

"Murban support has several factors: 1) ADNOC cuts, 2) WTI production is down, and 3) CPC exports for June," said a second trader.

Last week, WTI production took a hit with a steady stream of announced producer cuts shrinking excess supply from the global oil pool. This included ExxonMobil, which expects its global upstream production to decline by 400,000 b/d of oil equivalent in the second quarter, and Chevron, which will shut in 200,000-300,000 boe/d in May, with further volume reductions to come.

Additionally, ConocoPhillips said it intends to curtail 265,000 b/d of gross oil, starting in May, representing an additional 40,000 b/d of cuts from the Lower 48 states. Output cuts will ramp up to 460,000 b/d in June, said the company.

Meanwhile in Europe, traders of CPC Blend expect the June loading program of the light sweet crude to see further cuts in line with Kazakhstan's OPEC+ commitment to reduce output by 390,000 b/d for both May and June, from a baseline of 1.709 million b/d. Subsequently, price differentials of CPC Blend have risen. An Aframax of CPC Blend loading from Novorossiisk was assessed on Wednesday at Dated Brent minus $3.50/b on a CIF Augusta basis, moving up sharply from minus $4.30/b at the end of last week on Friday, showed Platts data.

These production declines are likely to amplify Abu Dhabi's own efforts at curtailing its light crude production, said traders.

The UAE plans to cut its production by an extra 100,000 b/d in June, on top of its OPEC+ commitments, to support Saudi Arabia's efforts to balance the market, said the country's oil minister Suhail al-Mazrouei on Monday. As part of its OPEC+ commitment, the UAE agreed to cut output to around 2.5 million b/d in May and June from about 4.1 million b/d in April.

ADNOC said last month it intends to cut volumes of its flagship Murban and Upper Zakum grades by 20% in June, compared with 15% cuts for May volumes. It will also cut volumes of its other light grades, Das and Umm Lulu, by 5% each in the same period.