Most Asian sour crude traders expect sharp hikes in Saudi Aramco’s March crude official selling prices to be released later in the week of Feb. 3, as they weighed tighter fundamentals in January from fresh Western sanctions on Russia against deteriorating margins amid a spike in Middle East crude prices.
The majority of expectations were for a month-over-month increase in the $2s/b range for Aramco’s March Arab Light crude OSP, according to seven traders surveyed by S&P Global Commodity Insights. One trader forecasts a $2.50/b increase, while a second expects an increase in the $2.30-$2.60/b range across Aramco’s five grades.
A third trader said Aramco might choose to hike the Arab Light OSP by as much as $3/b.
“Minimum [increase would likely be] $2.50/b. Might be even higher; heard Saudi is already telling some to expect $3/b,” the trader said.
Several forecasts were much weaker, with a fourth trader expecting an increase in the $1-$1.30/b range for Arab Light, and an increase of $1.80-$2/b across the five grades by a fifth trader.
Comparatively, the Platts Dubai cash-futures spread, a measure of the market structure and one of the factors that Aramco looks at in setting its OSPs, widened by $2.28/b month over month to average $3.39/b in January, Commodity Insights data showed
The large range of expectations reflects a clash of factors for the March-loading Middle East crude market in January. Middle East crude differentials spiked following the Jan. 10 announcement of fresh US and UK sanctions against Russia’s energy sector, although this correspondingly led to a collapse in margins for many Asian refiners.
The Dubai crude Singapore cracking netback margin hit an intramonth low of minus 65 cents/b in January — although the cracking margin averaged plus 90 cents/b through the month, down from an average of plus $3.55/b for December, Commodity Insights data showed.
While Asian refiners, particularly those from China and India, initially sought Middle East grades as their first alternative to Russian crudes, the subsequent jump in values saw many seeking arbitrage barrels in large volumes, including those from the Americas, North Sea, West Africa and the Mediterranean.
US tariffs
Traders cited the recently announced US tariffs on Canada and Mexico over the weekend as a factor giving Aramco more leeway in hiking March crude oil OSPs by a larger amount.
The White House said Feb. 1 that the US will impose a 10% tariff on energy imports from Canada and a 25% tariff on energy imports from Mexico, to take effect from Feb. 4.
The tariffs are expected to remain a major theme for the April-loading Middle East crude cycle this month, with traders saying they will likely result in a major reshuffling of global crude flows. More US crude will likely be kept for domestic consumption, while more Mexican and Canadian crudes are expected to be diverted to Asia, they added.
More Middle East crude barrels could also be diverted to the US, one trader said.
“Should be quite constructive [for the Middle East crude market]. Especially with the tariffs on Canada/Mexico,” a trader said.
According to a second trader, “Everyone is digesting this,” referring to the US tariffs.
China’s petroleum industry expects Beijing to be cautious about imposing countermeasures on energy imports from the US in response to a 10% tariff on Chinese goods, while monitoring the market to capture opportunities to import more Canadian and Mexican crudes at competitive prices, Commodity Insights earlier reported.
One trader expects Middle East crude differentials this month to remain firm, albeit at weaker levels compared with the March-loading market in January.
Dubai futures intermonth spreads trading on the Intercontinental Exchange indicated a cash-futures spread of around $3.60/b for front-month Platts April Dubai in late-morning Asian trade Feb. 3, up from the monthly average of $3.39/b for January but down from daily highs of more than $5/b hit in the middle of last month.
“Still bullish, but not as strong as last month,” a third trader said, with a fourth trader noting, “Seems the market is biased toward the bull side, so it may remain supported. But not sure if it can sustain strength for the entire month.”
Source: Reuters