Saudi Aramco's July crude OSPs within expectations but still overvalued: Asian traders

Asian traders viewed Saudi Aramco's cuts to its July crude oil official selling prices for Asia-bound cargoes as largely within expectations June 6, though some said the producer had room to cut further given still-poor margins afflicting the region's refiners.

Aramco in a June 6 notice cut the July OSP differential for its flagship Arab Light by 50 cents/b on the month to a premium of $2.40/b to the Oman/Dubai average.

For the Arab Extra Light grade, the OSP differential was cut by 60 cents/b to a premium of $2.20/b to the same benchmark, while the Super Light OSP differential was cut by 50 cents/b to a premium of $2.95/b.

The Arab Medium and Arab Heavy OSP differential were both cut by 40 cents/b to a premium of $1.95/b and a premium of $1.20/b, respectively.

While the cuts for Arab Light, Extra Light and Super Light were within expectations, the 40 cents/b cut for Arab Medium and Heavy came as a welcome surprise to some refiners, many of whom had expected a rollover given better-performing high sulfur fuel oil cracks last month.

"Not bad. Better than expected," one refining source said.

Nonetheless, some Asian traders said the producer had room to cut further given the current bearish market. Asian refinery margins had hovered near negative for much of May, S&P Global Commodity Insights data showed, while the West was still grappling with a glut of cargoes amid weaker-than-expected demand in Europe.

Platts assessed the Dubai Singapore cracking netback margin at an average of minus 48 cents/b in May, down 66 cents/b on the month and the lowest since minus $1.93/b in June 2021, according to Commodity Insights data.

"I think they could have reduced more, looking at the weak market," a second Asian refining source said, while one trader noted that the OSPs were "still too high."

The outlook for the August-loading cycle this month showed signs of brightening. Refining margins have turned higher in recent days, while the recent plunge in crude oil prices could also spur more buying from some end-users.

As of June 5, Platts assessed the Dubai Singapore cracking netback margin at plus $1.60/b, up 5 cents/b on the day, data from Commodity Insights showed.

The supply glut in Europe and West Africa also showed signs of clearing, likely as sharply narrower sweet-sour crude spreads spurred greater buying of Brent-linked sweet crudes by some Asian refiners.

Nonetheless, some traders said they preferred to take a wait-and-see approach on the August market for now.

"I feel it [the recent recovery in margins] is a corrective bounce. Not sure how long it can last, but good chances that we are not bottomed out yet in the broader time frame," a refining source said.