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Asian crude buyers eye higher Saudi term supplies after Aramco cuts Nov OSPs

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Asian crude buyers eye higher Saudi term supplies after Aramco cuts Nov OSPs

Highlights

Prices cut by 10-50 cents/b, Asian refiners could get full term supplies

Market cautious on spot demand for December-loading crude

Saudi Aramco's cut to its official selling prices for Asia-bound crude in November could prompt refiners in the region to seek more term crude supplies, according to trade sources.

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Aramco cut November differentials for Super Light by 10 cents/b, Extra Light by 20 cents/b, Light and Medium by 40 cents/b, and Heavy by 50 cents/b versus October levels, it said in an Oct. 5 letter.

"Helps appease end-users given that they didn't increase production above the contractual [volumes] at the recent meeting," a trader in Singapore said.

The OPEC+ alliance on Oct. 4 decided to stick with its schedule for unwinding production cuts by adding back another 400,000 b/d of production in November. There had been speculation prior to the meeting that it might accelerate the return of crude volumes.

But trade sources said Aramco's pricing decision showed the market was not all that tight.

"If allocations were tight, they would have provided OSPs which should have been costlier [but] they are signaling they have volumes, and buyers can take," a trader with a South Asian refinery said.

This month, Middle East producers led by Aramco are expected to allocate full supplies of crude loading in November to term buyers, the trader in Singapore said.

"I think Saudi has to cut [prices]; they have pushed all end-users to nominate more," another crude oil trader in Singapore said.

Though opting for more term crude could pressure spot demand for December-loading crude, opinion among market participants is split.

"But refiners also know that December Saudi OSP will be much higher. Runs are up... [the Brent/Dubai spread] is wide... there's some supporting factors," a third trader in Singapore said.

At the Asia close on Oct. 5, the December Brent/Dubai EFS was pegged at $4.42/b, the highest since May 30, 2019 when it was assessed at a premium of $4.52/b, Platts data showed.

The Brent/Dubai EFS is a key indicator of the spread between light sweet and heavy sour crudes, and a wider EFS makes crude priced against Dubai more economically attractive for Asian refiners compared to Brent-linked ones.

However, some sources suggest a slight dip in spot activity can be expected, similar to September when term buyers were provided full supplies by Aramco, trade sources said.

"Need to see how December [loading] spot [trade] pans out. There is [the] option to take more November [loading crude] and use for December," the trader with the South Asian refinery said.

Crude demand in Asia looks bullish this month with focus on key oil importing nations such as China, Japan and India, traders said.

"Product demand [in India] is good. Market is also picking up," another trader with a South Asian refinery said.

Furthermore, after the current Golden Week holidays, Chinese demand is also expected to roar back with independent refineries in the country likely to be issued a fresh batch of import quotas, according to sources.

"Every country has better demand. China in particular," the second trader in Singapore said.