Expectations for Middle East crude oil Nov OSPs mixed amid uncertainties: traders

New York — Expectations on how key Middle East producers could set the upcoming official selling prices of their crude were mixed against a backdrop of demand, supply and geopolitical uncertainties, market participants told S&P Global Platts Oct. 29.

Saudi Aramco and Abu Dhabi National Oil Company could either lower, raise or keep the OSP differentials for their December-loading barrels steady from October OSPs, with the range given averaging between a cut of 10 cents/b to an increase of 10 cents/b, they said.

A key price indicator for Middle East sour crude market, the cash Dubai-futures spread has averaged a 67 cents/b discount so far in October, down from an average of minus 53 cents/b over the whole of September, Platts data showed.

The price indicator, tracked by Middle East producers to define the core direction and extent of price hikes or cuts, suggests producers could lower their OSP differentials for December.

"The Dubai structure is weaker than last month so the OSPs should be decreased, a North Asian crude oil trader said. "Demand may have been good in the middle of the month but it has gone lower towards the end of the month."

Earlier in October, Aramco raised the November OSP differential for Arab Extra Light and Light crude bound for Asia by 20 cents/b and 10 cents/b, respectively, to minus 60 cents/b and minus 40 cents/b against the average of Platts Dubai and DME Oman. Arab Medium and Heavy were left unchanged from October, with both set at minus 30 cents/b against the average of Platts Dubai and DME Oman.

ADNOC, meanwhile, had raised the OSP differentials of all its crude for November by 15 cents/b month on month, with flagship Murban crude set at Platts Dubai minus 35 cents/b, Platts data showed.

Volatility

Those who expect prices to move lower also pointed to the continued volatility in demand recovery.

"While the domestic economy is good in China, the key product export market remains weak, with lockdowns in Europe putting pressure on the international market," a crude oil trader said, adding that the uptick in crude oil demand from China this month may not be sustained into November.

Despite the lower cash Dubai-futures spread, some market participants said they expect Aramco to either keep the December OSPs steady or raise them from November in view of stronger demand from Asia in October, particularly from China and India.

"By the [OSP] methodology it should be corrected down, but I think [they] may be roll [November OSPs] over [to December]," a Singapore-based crude oil trader said.

The emergence of demand from independent refiner Rongsheng in mid-October single-handedly lifted Middle East crude oil market sentiment. Rongsheng initially purchased up to 8 million barrels of Middle East crude, but then re-emerged to buy an additional 6 million barrels for December loading, traders said.

"Although the structure suggests OSPs should be lower, market sentiment has been stronger because of China and India buying," a Singapore-based crude trader said. "Also the overhang [Middle East] cargoes [for November] have cleared because Rongsheng bought a significant amount and there is a perception that the market is tighter this month compared to last month."

Product margins

An improvement in product margins in October could also be seen as a supportive factor for prices to move higher, some traders said.

"Producers may slightly increase their OSPs as product margins have improved a bit [this month], and also because of the buying interest we see from India and China," a crude oil trader at a North Asian refinery said, adding that demand from China could remain steady going into the next trading cycle.

The second-month gasoil and jet fuel swap crack versus Dubai swaps have rebounded from multi-year lows to average $3.74/b and $1.71/b so far in October, up from $3.47/b and minus 39 cents/b respectively in September, Platts data showed.

Lighter distillate such as naphtha and gasoline, meanwhile, continue to hover near multi-month highs, while fuel oil swap cracks have averaged higher this month, with the 180 CST swap crack averaging minus $1.33/b in October to date, the highest since April 2019, the data showed.

Traders also said the outcome of the US elections next week as well as any changes in the OPEC+ alliance's plan for output cuts for 2021 could have a bearing on how the market could move in November.

The Joint Ministerial Monitoring Committee said Oct. 19 that it was closely following market trends and would not hesitate to call for further supply restraint if needed. The OPEC+ alliance, which is in the midst of a 7.7 million b/d production cut accord that is set to ease to 5.8 million b/d from January, will meet over Nov. 30-Dec. 1.

"In November, OPEC's decisions and the US election will be key," the Singapore-based crude oil trader said.