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Saudi Aramco's Nov OSPs draw mixed market views as demand uncertainties linger

Highlights

Expected price hikes of up to 50 cents/b, discounts not ruled out

Recession concerns outweigh winter season demand

Chinese demand continues to lag, export quotas in focus

  • Author
  • Ada Taib    Pankaj Rao
  • Editor
  • Aastha Agnihotri
  • Commodity
  • Natural Gas Oil

Market participants held mixed views on Saudi Aramco's November official selling prices for its Asia-bound crude oil, likely to be released later this week, as fears of a global recession dented winter demand optimism.

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The largest oil producer in the Middle East could raise the OSP differentials for its November-loading Arab Light crude oil grade by up to 50 cents/b, though some sources suggest a cut in prices by up to 30 cents/b.

"I feel [it] should be a small lift up [of] about 30 cents/b," said a Singapore-based crude oil trader said.

The start of winter stockpiling of crude and oil products was seen as a potential boost especially given how gas prices continue to rally, traders said.

"There's expectations or hopes that Saudi won't go all the way up [in line with Dubai structure rise]. People were saying its either 50 cents/b [hike] or [a] lower [increase]," a second trader in Singapore said.

Platts Dubai cash-futures spread, a key element in OSP calculations, averaged $5.42/b in September, up 46 cents/b from $4.96/b in August, S&P Global Commodity Insights data showed.

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

"How the market will go next month [is hard to say as] winter demand is the sole supportive factor," the second trader in Singapore said.

Some sources suggested that Saudi Aramco could cut its November OSPs from October levels on rising concerns of an economic recession that could batter oil and product demand.

"I am expecting a small discount. Demand I think is not that strong for end year cargoes [and] beginning next year ones," a trader with an oil producer said.

A trader with a Chinese refinery also seconded calls for a discount in prices of around 30 cents/b given how demand cues petered out last month.

"I think should be decreased based on current market and supply/demand [fundamentals]," the trader said.

Although the Dubai cash/futures spread averaged higher on the month, some suggested that the spread has come off from over a six-week high of $6.28/b at close Sept. 16 to a one-month low of $3.94/b on Sept. 27, S&P Global data showed.

"Market has come off a lot in the last week or several days. People are quite bearish on flat price [and] outlook in general," the second Singapore based trader said referring to the fall in the Dubai cash/futures spread.

China yet to bounce back

Among Asian buyers, Chinese demand continues to stutter though the expectations of a fresh batch of product export quotas and loosening of current pandemic restrictions may finally help break the shackles, traders said.

"China I feel is [a] supportive factor because of the export quota," the first trader in Singapore said.

Recent market talks indicated that the Chinese government could potentially issue as much as 15 million mt, or around 119 million barrels, in the final round of export quotas for 2022 in the coming days or weeks, S&P Global reported earlier.

The export quotas would cover a wide range of oil products including gasoline, gasoil, jet fuel and fuel oil.

However, an increase in product exports from China could possibly dent the market with product margins languishing from record highs seen in the recent past, data showed.

In September, second-month gasoil cracks versus Dubai swap averaged $36.80/b, down 15.5% from an average of $43.55/b in August.

Gasoline cracks were even more impacted with September margins averaging $3.43/b, down a whopping 65.97% from an average of $10.08/b last month, the data showed.

"If margins stay at these levels, is there any incentive to refine as much?" the second trader in Singapore said.

In comparison, the other Asian economies seem stable so far, with India showing no signs of slowing down while Japan and South Korea expected to remain active for their winter procurements, the second trader in Singapore said.