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Market sentiment mixed after Saudi Aramco cuts June OSPs for Asia

Singapore (Platts)--2 May 2017 535 am EDT/935 GMT


Market sentiment was mixed on Tuesday, after Saudi Aramco cut the June official selling price differentials of its Asian-bound crude grades by 20-70 cents/b late Monday.

Aramco lowered the price of its Asia-bound Arab Light crudes by 40 cents/b to a discount of 85 cents/b to the Platts Oman/Dubai average in June, it said in a statement late Monday. The OSP was the lowest since September 2016, when it was at a discount of $1.10/b, S&P Global Platts data showed.

It also lowered the price of Arab Medium by 45 cents/b to a discount of $1.30/b to Oman/Dubai, the lowest since January this year.

Aramco lowered the price of its Arab Super Light by 70 cents/b to a premium of $3.05/b to the Platts Oman/Dubai average in May, the lowest since the beginning of the year.

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It lowered the price of its Arab Extra Light by 60 cents/b to be equal to the Platts Oman/Dubai average in June, and the price of Arab Heavy crude by 20 cents/b from May to a discount of $2.80/b to the Platts Oman/Dubai average in June.

Traders surveyed by S&P Global Platts last week said they expected Aramco to cut the June OSP differentials of its Asia-bound crudes by up to 40 cents/b from May.

"[The June OSPs showed] much bigger cuts than I expected. I would say refiners should be pretty pleased," said a Singapore-based crude trader.

Traders have noted that June-loading Middle East crude cargoes have largely traded in discounts last month, while the Dubai crude structure have weakened, reflecting the weaker demand and supply fundamentals.

Frontline cash Dubai have averaged at minus 73 cents/b for April to-date, down from minus 27 cents/b in March, and the lowest since November last year, when it was at minus $1.04/b, Platts data showed.

The Dubai market structure is understood to be a key component in the Saudi OSP calculations.

Traders added that the narrower Brent/Dubai Exchange of Futures for Swaps last month could have played a part in Aramco's decision when cutting the Asia-bound OSPs.

The second-month EFS averaged 96 cents/b in April, down from $1.33/b in March and the narrowest since August 2015, when it averaged at 79 cents/b.

"I guess Aramco [was] trying to counter the narrowing Brent/Dubai by cutting deeper then formula dictates," the Singapore-crude trader said.

Traders have noted that Middle East crudes are likely to face continued competition from Western arbitrage barrels, with the EFS likely to stay narrow this month.

"It looks [like EFS could be narrow] this month too," said another crude trader.

Other traders noted that the cuts were within their expectations, while a trader noted that the cuts for the Asia-bound medium and heavy crude grades OSPs could have been bigger.

"They lowered the Arab Light, which was within our expectation, but Arab Medium and Arab Heavy [were] not lowered enough," said a North Asian crude trader, adding that Aramco likely expects the demand for medium, heavy grades to remain supported this month due to the summer refining season.

Latest data from Saudi Arabia in mid-April showed its crude exports fell for a third consecutive month to 6.957 million b/d in February.

The country's February crude production averaged at 10.011 million b/d, up 263,000 b/d, or 2.7%, from the previous month's 9.748 million b/d.

This is the second month of data available on Saudi crude output and exports following the implementation of an OPEC-led production cutting initiative.

Under the November 2016 agreement, the group pledged to hold its combined production at or below 32.5 million b/d for six months from January 1, in order to rebalance the oil market and support prices.

Saudi energy minister Khalid al-Falih said two weeks ago that he saw an extension of the OPEC/non-OPEC production-cut agreement likely if global oil inventories do not fall to sufficient levels.

OPEC ministers will meet on May 25 in Vienna to decide whether to extend the production cuts.

--Ada Taib, ada.taib@spglobal.com
--Edited by Arnab Banerjee, arnab.banerjee@spglobal.com




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