ADNOC's October Asia OSP cuts higher than expectations: sources

Singapore — ADNOC's reduction of official selling price differentials for its October crude oil exports to Asia were higher than expectations, trade sources said Sept. 9.

ADNOC had set its October OSPs for all its crude grades down $1.35/b from September, according to sources on Sept. 8.

Previously, market participants had expected ADNOC to make milder OSP cuts due to a reduction in term volumes. The company had announced a 30% cut in term allocations for October-loading cargoes, a greater reduction compared to a 5% cut in volumes for September cargoes.

Despite the sharp OSP cuts, trade sources said that persistently weak refining margins are likely to keep demand suppressed, with ADNOC grades unlikely to fetch significant premiums in spot trading.

"The OSPs are better than expected but market seems to not react to it," a sour crude trader from a Western oil major said.

"I think market trading at flat [versus OSP] is a coherent assumption for now," the trader added with respect to ADNOC's light crude grades.

Market differentials for most sour crude grades have been stuck in discounts versus their OSPs, in the previous trading cycle.

"Main point is demand is still poor so I think small discount should be reasonable [even for this month]... Japan demand is not good. India [demand] may be [better], but they bought lots of cargoes already," a sour crude trader from a Chinese oil major said.

On Sept. 8, ADNOC had set the October official selling price for its flagship Murban crude oil at Platts Dubai minus 50 cents/b, down $1.35/b from September.

ADNOC maintained medium sour Upper Zakum's discount to Murban at 20 cents/b in October. This brings the October OSP differential for Upper Zakum to a discount of 70 cents/b against Platts Dubai, down $1.35/b from September.

Meanwhile, ADNOC kept the spreads for Das Blend and Umm Lulu unchanged against Murban for October at a 35 cents/b discount and at parity, respectively. This brings the October OSP differential for Das Blend to a discount of 85 cents/b and for Umm Lulu to a discount of 50 cents/b against Platts Dubai.

Spot market differentials may find support from recent OSP cuts, but trade sources said that weak demand is expected to still weigh on recovery.