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ADNOC's May OSP hike within expected range: sources

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ADNOC's May OSP hike within expected range: sources

Highlights

ADNOC hikes all grades by 35 cents/b

IFAD launch, spot trade in focus

Abu Dhabi National Oil Co issued official selling prices for May with a hike across all grades by 35 cents/b, a move that market participants deemed within expectations but better than OSPs issued by Saudi Aramco, trade sources told S&P Global Platts on April 8.

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ADNOC set the May OSP for its flagship Murban crude at Platts Dubai plus $1.40/b, an increase of 35 cents from April, while increasing prices for Umm Lulu, Das Blend and Upper Zakum also by 35 cents/b each, bringing them to premiums of $1.35/b, $1.05/b and $1.25/b, respectively, to Platts Dubai crude assessments.

Most market participants surveyed by Platts in the run-up to the issuance of OSPs expected a hike in the range of 20-30 cents/b, especially after market leader Saudi Aramco hiked prices for its Asia-bound crude grades by 20-50 cents/b.

"With Saudi increase, this is [ADNOC OSPs] also similar. Compared with Arab Light, Upper Zakum looks cheaper," said a trader with a South Asian refinery.

The hike was largely in line with a stronger market structure for benchmark Dubai in March. Cash Dubai's premium to front-month Dubai futures -- understood to be a key component in OSP calculation -- averaged $1.19/b in March, up 50 cents from February.

"Heard that these OSP hikes show their [OPEC+] confidence that the demand from Asia will recover, [thereby] surpassing the gradual easing of production curbs," said a crude oil trader.

Further boosting OSP hikes was robust demand for lighter crude grades in March as spot premiums hit highs and flows of arbitrage crudes from the West were limited.

Refining margins for light distillates had surged in March, with the second-month 92 RON gasoline swap crack versus Dubai swap averaging $8.06/b in March, up from $6.42/b in February, and the highest since November 2019 when it was at $8.12/b, Platts data showed.

In April so far, naphtha cracks have averaged a discount of 31 cents/b against a discount of 53 cents/b for the whole of March, while 92 RON gasoline swap cracks have averaged $9.06/b till date against $8.06/b in March.

"Gasoline margins are quite good," said a trader with a north Asian refinery, expecting lighter crude grades to perform well in the month's spot trade.

On the contrary, a supply overhang in the West could once again trump Middle Eastern crudes as Asian buyers seek cost effective purchases amid rising crude oil prices.

"Not really [expecting lighter grades to do well] as WTI may come here more," said another trader with a north Asian refinery.

India remains steadfast in its hunt for cheaper crudes as it issued a flurry of tenders seeking June-loading crude from regions outside the Middle East.

"Indications [for some Nigerian grades] are close to flat and on top of it VLCC freight is also cheap," said the trader with the South Asian refinery.

IFAD launch key

Post the launch of the IFAD exchange last month, OSPs for Murban exports will be based on the futures contract settlement that will go to delivery for two months ahead. OSPs for ADNOC's Upper Zakum, Das and Umm Lulu grades will be priced at a differential to Murban.

This, sources said, would be the key to OSP issuance from the producer, making the current price system all but a mere formality.

"Less relevant [current OSPs] now that we have IFAD though. Can see June OSP price by looking at the screen," said a crude oil trader in Singapore.

Meanwhile, spot trades in April will be keenly watched as buyers deal with increased supplies, high crude prices, and shaky demand scenarios from most Asian economies.

"We may see discounts against OSP in contrast to term purchase but I think even the discount isn't likely to cover all the hike in OSPs," said the second trader.

Last month, spot differentials for lighter crude grades eased as the month progressed while lackluster demand for medium and heavy grades saw those grades trading at parity or sharp discounts.

"I'll see if the Middle East crudes come with a hefty discount first as West African crudes seem to be there," said a trader with a Southeast Asian refinery.

The focus now shifts to issuance of OSPs by other regional producers like Iraq's State Oil Marketing Organization and Qatar Petroleum, post which spot trading activity for June-loading barrels flags off.