Riyadh: Saudi Aramco may be just days away from announcing its official selling prices (OSP) for June supplies to global customers - but traders and refiners in its most prized market have no idea what to expect.
The OSPs are, as always, a hot topic among long-term customers and traders as they provide a glimpse into the strategy of OPEC’s no. 1 oil exporter. While market participants tend to agree on the producer’s likely decision after analyzing trends around demand and supply, those looking for an early steer on Asian prices were out of luck this time.
While all seven respondents in a Bloomberg survey expected Aramco to cut June prices for its flagship Arab Light crude, the similarities in their forecasts end there. Estimates varied from a month-on-month drop of $0.50 a barrel to a plunge of as much as $7.50, with traders saying conflicting market signals before the OPEC+ output cuts were responsible for the lack of consensus.
The kingdom reduced its OSPs for May sales to Asia by a larger-than-expected margin, with the move seen as an indication the supply war wasn’t over as cheap US and Russia crude continued to provide stiff competition. Aramco may cut its Arab Light official price for June sales to a discount close to $9.80 a barrel against the benchmark, based on the median results of Bloomberg’s survey.
The company typically announces its OSPs around the fifth of each month.
Specific demand is there
The traders who saw smaller reductions cited strong demand on the spot market for medium and heavy-sour grades, referencing price differentials for other Middle Eastern grades such as Iraq’s Basrah Light. The others, however, pointed to a sharply weaker market structure for the region’s benchmark Dubai crude, which Aramco has been known to consider in its monthly OSP decision.
Oil markets across Asia have been hit hard by travel restrictions and stay-home directives that have battered economies and pummeled fuel consumption. While China has reopened its economy and ramped up its crude oil purchases for local refineries, other countries such as India remain in lockdown.
Aramco’s official prices for its five main grades - Arab Super Light, Arab Extra Light, Arab Light, Arab Medium and Arab Heavy - are set monthly at a differential to benchmark Oman-Dubai prices. The latest OSP for flagship Arab Light crude for May cargo sales currently stands at a record discount of $7.30 a barrel to the benchmark, compared with a premium of $3.70 for January.