Saudi Aramco expected to hike Dec OSPs on rally in Dubai structure

Saudi Aramco and other Middle East producers are expected to raise official selling prices for crude loading in December, buoyed by a tight demand-supply balance ahead of the Asian winter that has led to a rally in the benchmark Dubai market structure in October, traders told S&P Global Platts.

Middle East producers led by regional kingpin Saudi Aramco could hike prices by 30 cents/b-$1/b across all crude grades next month, sources said.

The Dubai futures spread -- understood to be a key element in OSP calculations -- averaged $2.29/b in October, up sharply from an average of $1.42/b in September, Platts data showed.

"Tricky [on how much the hike could be] but the market rallied so Saudi will take note," a trader in Singapore said.

The increase in prices comes on the back of two consecutive months of OSP cuts, when Saudi Aramco slashed prices by $1.40/b-$1.70/b for crude loading in October and November, the data showed.

"No reason why they [Saudi Aramco and other producers] will hold back," another trader in Singapore said. "I think between 50 cents/b-$1/b across heavy to lights."

Crude prices have been on the rise over recent weeks amid tighter supplies in the West while soaring gas and coal prices have pushed refiners in Asia to seek more crude oil for heating demand, traders said.

Light, sour crudes could see the sharpest hikes of around $1/b or more, while the medium, sour and heavy, sour crude grades could be raised by 30-60 cents/b, market sources said.

"Light [by around] 80 cents/b-$1.20/b, medium [by] 50-60 cents/b, heavy [by] 20-30 cents/b," a trader with a South East Asian refinery said.

Refiners in North Asia are seeking more crude for heating supplies as a cold winter approaches which in turn has bumped up prices for Middle East light, sour crude grades such as Murban due to its rich yield of winter-friendly products, a trader with a Japanese trading house said.

In October, the IFAD Murban versus Dubai futures spread averaged $3.44/b, compared to $2.22/b for the whole of September, S&P Global Platts data showed.

"The winter months is one reason [for the sharper hikes] for warming. Lighter grades give more naphtha and kerosene," the trader with the Japanese trading house said.

A widening Brent/Dubai spread has further stalled the entry of light barrels from the West such as Forties and WTI, making Abu Dhabi's Murban crude a pricier buy this month, trade sources said.

Meanwhile, the medium, sour and heavy, sour crude grades could see nominal hikes compared to lighter grades, sources said.

"Problem is fuel oil margins and cracks. HSFO is weak," a trader with a North Asian refinery said.

In October, the 180 CST HSFO cracks are averaging minus $3.44/b from minus $2.99/b in September, Platts data showed.

Barring winter heating requirements, oil demand in Asia remains bullish as refinery runs improve and economies brush off COVID-19 concerns, market participants said.

"We have moved past COVID," the first trader in Singapore said, with the second Singapore-based trader adding that "margins have improved."

Demand from key Asian economies -- India, China and Japan -- is expected to remain resilient in the months ahead, sources said.

As trade for January-loading crude commences in November, Chinese buying appetite could grow further, the same trader with the North Asian refinery said.

"Next month [November] is January loading, they [China] can buy. Not only teapots, but NOC's [national oil companies] can buy [too]," the trader said.

Indian demand could also see an uptick amid further reopening of the economy boosted by higher festive season consumption of oil and products, sources said.

Meanwhile, differentials for ADNOC's lighter grades Umm Lulu and Das Blend could see little change to the Murban OSP, traders said.

Upper Zakum's spread to Murban next month may also remain unchanged or widen marginally by 5-10 cents/b, the second trader in Singapore said.

"Overall I think producers and sellers are doing OK. I don't see any surprises," the same trader said.