Saudi Aramco's Nov Asia crude OSPs on high side of expectations: traders

Saudi Aramco's November crude oil official selling prices, released over the weekend, came in on the higher side of expectations for Asia-bound cargoes, with traders attributing the strong OSPs to anticipated tighter supply in the fourth quarter, despite still-poor refining margins in Asia.

In an Oct. 5 notice, Aramco set the November Asia OSP for its flagship Arab Light crude at a premium of $2/b to the average of DME Oman and Platts Dubai, up 90 cents/b month on month. Other Asia-bound grades saw varying increases of 50-90 cents/b.

Expectations from Asian sour crude traders leading into the OSP release had been widely divergent, ranging from as much as a $1/b increase to a "large" cut for Arab Light.

"Very strong," one trader said, referring to the increases in the OSPs.

Aramco's latest OSPs come as oil markets have taken a decidedly bullish turn in recent days, following a flare-up in fighting between Israel and Iran and its proxies in the Middle East, which resulted in ICE Brent crude prices having surged nearly 10% over the prior week to Oct. 4.

The resulting risk premium from the conflict, as well as talk in the market of field maintenance carried out by Aramco in the fourth quarter, likely contributed to the large hikes, traders said.

"I think [Aramco] has a major turnaround coming up in [the fourth quarter]. They might be tight [in supplies]," a second trader said.

The field maintenance could not be confirmed with Aramco.

Nonetheless, end-users in Asia are expected to receive the OSPs poorly, as many had already raised concerns of particularly poor margins last month.

The Dubai crude Singapore cracking netback margin averaged at just 9 cents/b over September, down from $1.79/b over August, S&P Global Commodity Insights data showed.

Platts most recently pegged the cracking margin at $1.12/b Oct. 4, according to Commodity Insights data.

Iran-Israel conflict

For now, Asian sour crude traders and end-users will be keeping a close eye on the escalating conflict in the Middle East, and any risk it might pose to crude oil supply from the region.

Any disruption so far appears limited to Iranian crude. No liftings of crude, condensate and fuel oil -- Iran's main oil exports -- have been recorded from the country since Sept. 29, as the conflict between Iran and Israel grew, S&P Global Commodities at Sea data showed.

Iran normally ships 7-10 crude charges each week, the data showed.

Further impact to the December-loading Middle East spot market could come from heightened risk premiums for ships lifting crude from the Persian Gulf, which could then lead to depressed spot premiums, a trader said.

"One way of looking at it is that spot premiums could come under pressure because shipping fees will go up, and buyers will want to avoid loading crude from there," the trader said.

Vitol Asia Head Mike Muller, in a Oct. 6 podcast, said oil markets "feel a lot tighter" than only weeks ago following the increased fighting between Israel and Iran and its proxies.

"The energy industry is deciding what premium to place on the risk of disruption to critical oil and gas supply infrastructure," Muller said on the Gulf Intelligence Daily Energy Markets podcast. "Suddenly a lot of the oil markets, including diesel, kerosene, gasoline and crude oil feel a lot tighter than they did a few weeks back."