Supply cuts, price hikes largely priced in for Middle East crude in Asia

Singapore — Middle East crude paper markets adjusted mildly upward in the first half of trading on June 8 in Asia, suggesting the OPEC+ cut extension and Aramco's price hikes had been largely priced into market expectations for the current cycle.

At 11 am in Singapore on June 8 (0300 GMT), outright prices were approximately 5% higher compared to the June 5 Asian close, while a mild uptrend was seen for Dubai crude futures' intermonth spreads.

The August Dubai benchmark futures contract rose 5.6% higher from 0830 GMT at June 5, to be pegged at $42.30/b at 0300 GMT on June 8, Platts data showed.

The July/August spread was pegged at 3 cents/b and the August/September spread was pegged at minus 7 cents/b June 8, from minus 14 cents/b and minus 26 cents/b respectively at the Asian close on June 5.

The August Brent/Dubai Exchange of Futures for Swaps was pegged at 55 cents/b June 8 morning, little changed from the 57 cents/b at the Asian close on June 5.

Market participants in Asia woke up to hefty price hikes from Saudi Aramco on June 7, following closely on the heels of an OPEC+ meeting on June 6 that expanded the alliance's global cut footprint in July from 7.7 million b/d to 9.6 million b/d.

The two bits of news balanced off fundamentals, said crude market participants, with supply cuts a bullish signal, but price hikes bearish for demand.

Neither came as a surprise to the market however, which would now adjust to price in the remainder of the gap between expectation and reality, they added.

"It's higher than people's expectation," said a crude refiner of Aramco's price hikes of $5.60/b to $7.30/b to Asian buyers. A Platts OSP survey had pegged expectations of price hikes around $2/b to $5/b.

At the same time, OPEC+ supply cuts extending into July had been a topic of discussion in global oil markets for several weeks, giving crude traders ample time to price in the bullish signal, said participants.

Saudi Aramco on June 7 hiked its July crude export official selling prices across the board, for all regions and grades.

The OSP differential for its Arab Light crude headed to Asia was set at plus 20 cents/b against the average of the Dubai and Oman benchmarks over July. That is up by $6.10/b from the June price.

Aramco also set the OSP differentials for its Extra Light and Medium crudes headed to Asia at a 20 cents/b premium to the average of Dubai and Oman, a month-on-month rise of $6.70/b and $5.90/b, respectively.

The Saudi oil giant, whose monthly pricing is one of the most closely watched data points on the global market, had delayed the release of its OSPs pending the result of the July 6 OPEC+ meeting, which ended with an extension of the coalition's 9.6 million b/d output cut agreement through July.

The cuts had been scheduled to roll back to 7.7 million b/d at the end of June.

Under the deal, Saudi Arabia will hold its crude production to 8.49 million b/d.