Singapore — Saudi Aramco's move to raise the July official selling price of its Asian-bound crudes by 35-95 cents/b was higher-than-expected, with some traders calling the hike "too high" on Monday.
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Saudi Aramco late Sunday raised the price of its Asia-bound Arab Medium by 65 cents/b to a discount of 65 cents/b to the Platts Oman/Dubai average in July -- the highest since March this year when it was at a discount of 55 cents/b to Oman/Dubai.
It also hiked the July OSP of its Arab Heavy crude bound for Asia by 95 cents/b to a discount $1.85/b to the Platts Oman/Dubai average in July. This was the highest OSP for the grade since January 2014 when it was at a discount of $1.80/b to Oman/Dubai, S&P Global Platts data showed.
Last week, traders surveyed by Platts said they expected Aramco to mostly raise its July OSP differentials, with the heavier grades expected to receive the largest boost of 50-80 cents/b from June levels.
"That [the OSP increase] is up more then I expected. [Up] 65 cents/b on medium is definitely at the higher end [of expectations and] Arab Heavy up 95 cents/b is huge," said a Singapore-based crude trader. "Still heavy [crudes are] very short ... I think some refiners will whinge, no doubt."
Another trader noted that the increases could mean that Aramco is expecting strong summer seasonal demand from Asia for the medium, heavy crudes.
"I'd say that it probably means they have a lot of nominations on heavies versus what they are exporting, [which is] in line with a potential OPEC cut," said the trader.
On the lighter grades, Aramco raised the July OSP of its Asia-bound Arab Extra Light by 40 cents/b to a premium of 40 cents/b to the Platts Oman/Dubai average in July, and the price of Arab Light by 60 cents/b to a discount of 25 cents/b to Oman/Dubai.
For Asia-bound Arab Super Light, Aramco increased the grade's July OSP by 35 cents/b to a premium of $3.40/b to the Platts Oman/Dubai average in July.
Traders' views surveyed last week were mixed, with some expecting Aramco to hold steady the OSP differential for Asia-bound Arab Extra Light crude from June, while others were expecting the OSP differential to be lowered for July.
"[The] adjustments [are] far too high ... even for lights," said a trader with a North Asian trading house.
"We expect every light grade to come off, [such as] Murban and Das, but Arab Extra Light [is at] plus 40 cents/b. It is just against the market," said a North Asian crude trader.
Traders noted that the higher-than-expected OSPs could result in lesser liftings from Asian term buyers.
"I guess [there will] not [be] much incremental request [for Saudi crudes] and whoever has the option will try to take as little as possible," said the North Asian crude trader.
"In theory, refiners will try to get lesser from term and more from the spot market. The other option is if Aramco chooses to nominate light grades rather than medium and heavy grades, [the] lights [sour market] could be impacted again. [But it] still depends on how ADNOC sees the market," said a Southeast Asian crude trader.
The higher-than-expected OSPs could trigger the purchase of more price competitive crudes from within and outside the region, traders said.
"Physically, there are a lot [of option for Asian refiners]. [While the] structure doesn't help nowadays, arbitrage [barrels] may come in again," said a trader.
"[With the higher OSPs] we could see more medium crudes from US, like Mars and Southern Green Canyon, come over [to Asia]. More people have other channels for sourcing [for crude]," said the Southeast Asian crude trader. Saudi Arabia's energy minister Khalid al-Falih said Friday his country's crude production was "below 10 million b/d" in May although he did not provide the exact figures. His comments indicated that the country continues to produce well below its quota of 10.058 million b/d under the output cut agreement.
Saudi Arabia has now cut more than its quota for five months in a row, the only country to do so.
On May 25, the 24 producing countries participating in the deal agreed to extend production cuts by nine months, to March 2018. The aim is to bring the global crude oil stock levels back down to their five-year average.
--Ada Taib, firstname.lastname@example.org
--Edited by Arnab Banerjee, email@example.com