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Saudi Aramco could raise March crude OSP differentials for Asia: traders

Singapore β€” Saudi Aramco is expected to raise the March official selling prices of its Asia-bound crude oil, largely due to the stronger Dubai crude oil market structure, traders said Tuesday.

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Most traders surveyed by S&P Global Platts said they expected Aramco to raise the March OSP differential of its Asia-bound Arab Light crude by around 10-20 cents/b from a discount of 15 cents/b to the Platts Oman/Dubai average in February.

The expected increase reflects the narrowing contango in the Dubai market structure, traders said.

S&P Global Platts data showed the spread between frontline cash Dubai versus same-month Dubai swaps at minus 26 cents/b over January to date, up from minus 61 cents/b in December.



The spread between the two was last higher in October, when cash Dubai averaged 6 cents/b higher than same-month Dubai swaps.

The Dubai market structure is understood to be a key component in the Saudi OSP calculations.

Some traders expected the lighter Saudi grades to receive larger increases to their OSP differentials than the medium and heavier grades.

"Naphtha crack got stronger compared to last month," said a Singapore-based crude trader.

The second-month naphtha to Dubai crude swap crack has averaged at a premium of 55 cents/b in January to date, significantly higher than minus $1.40/b last month, Platts data showed.

Meanwhile, fuel oil cracks were relatively steady compared with December, with second-month 180 CST and 380 CST HSFO averaging at minus $2.33/b and minus $3.29/b to Dubai crude swaps, respectively, to date in January.

However, they were below the four-year highs of minus $2.23/b and minus $3.32/b in November respectively.

"Fuel margin fell, which means Arab Heavy and Arab Medium's values should not be as high as Arab Extra Light or Arab Light," said a North Asian crude trader.

However, one trader noted that Aramco could make more moderate changes to the March OSP differentials of the lighter crude grades if it intends to remain competitive to Asian buyers.

"[Abu Dhabi's] Murban [crude] can compete with Saudi lights [and if Murban is cheap, it] might [put] some pressure [on demand for Saudi light grades]," said a Southeast Asian crude trader.


NARROW EFS


In addition, the narrow Brent-Dubai exchange of futures for swaps, or EFS, could make western barrels increasingly attractive to buyers in Asia.

The EFS has averaged at $1.65/b to date in January, the lowest since September 2015, when it averaged at $1.54/b.

The EFS is a key spread watched by the market to evaluate the value of European sweet crudes against Middle East sour crudes.

Earlier this month, Saudi Aramco raised the February OSP differential of its Asia-bound Arab Super Light and Arab Extra Light by 40-45 cents/b to premiums of $3.45/b and $1.10/b to the Platts Oman/Dubai average in February respectively.

The February OSP differential of its Asia-bound Arab Light grade was raised by 60 cents/b to a discount of 15 cents/b, while the OSP differentials for Arab Medium and Arab Heavy grades bound for Asia were raised by 50 cents/b each to discounts of 90 cents/b and $2.80/b respectively relative to Oman/Dubai.

Aramco is expected to announce its March OSP differentials in the coming days.

--Ada Taib, ada.taib@spglobal.com
--Edited by Wendy Wells, wendy.wells@spglobal.com