MOSCOW (MRC) -- Despite sharp cuts by Saudi Arabia in its official selling prices for crude oil recently, it's the relatively smaller producers like Abu Dhabi and Qatar that are emerging as attractive suppliers from the Middle East, an analysis by S&P Global showed last week.
Middle East crude producers have engaged in competitive pricing since March of this year, when Saudi Aramco slashed its OSP differentials by around USD6/b to Asian customers. Other producers followed suit with similar cuts to their respective grades.
While most Middle East producers tend to track monthly OSP changes by Saudi Aramco, the divergence in the final sale price of crude they are offering stems from the various benchmarks that different producers use.
Most Middle East producers offer their crude to Asian buyers at a premium or discount to either Platts Dubai, Platts Dubai/Oman average, Platts Dubai/DME Oman average or DME Oman average.
The sharp divergence in the value between Platts Oman and DME Oman is key to deriving the final price that endusers pay to the producer. The DME contract's premium stands out in the wider Asian market due to a combination of specific fundamentals, namely deep supply-side production cuts from Oman and rising import demand from China.
"Demand in China seems fairly robust now. With new quotas and domestic pricing, they are rushing to buy what they are used to, for example, Oman and ESPO etc," a Singapore-based crude trader said.
With fresh OPEC+ production cut quotas coming into effect this month, Oman said it would cut oil production from its six largest producing blocks by 23% from its October 2018 baseline levels of 883,000 b/d to adhere with the OPEC+ production cuts coming into effect for May and June.
Back in March, Saudi Aramco slashed the price of its April Arab Light crude by USD6/b, far outstripping a cut of USD3.98/b for Abu Dhabi's Upper Zakum crude OSP differential and USD5/b for Qatar's Marine crude for the same month.
On the surface, all three grades are of similar quality, and all load from neighboring countries in the Persian Gulf. With this in mind, the OSP differentials for Saudi Arab Light seems cheaper by a wide margin.
For the same pricing period, the DME Oman futures contract averaged USD$3.17/b higher than Platts Oman over April, exceeding its previous record high seen in March.
In the same month, the DME Oman's premium over Platts Cash Dubai averaged USD3.27/b, then the widest spread between the two Middle East markers since averaging USD1.81/b in July 2008, Platts data showed.
"The DME Oman value was minus USD2.70/b one day when window (Dubai) value for medium sour at the time was minus $9.70/b," said the trader, pointing to the wide variation seen of late between the two references for Middle East crude in Asia.
As a result, Asian customers paid USD18.92/b for a cargo of Saudi Arab Light loading over April, while paying USD17.34/b for Upper Zakum, and USD17.53/b for Qatar Marine crude loading in the same month.
For a 500,000-barrel cargo typical of Middle East crude loadings, that difference amounts to USD791,500 between an April loading cargo of Arab Light and Upper Zakum, or a USD695,000 difference between Arab Light and Qatar Marine.
Moving this sentence up ? In the same vein, a 500,000-barrel cargo of Iraq's Basrah Light crude loading over April would cost USD17.23/b compared to USD17.97/b for Saudi Arab Medium, or a total difference of USD370,000 for the entire cargo.
The difference is likely to be compounded by the continuing divergence between underlying reference markers, with the spread between DME Oman and Platts Oman averaging USD3.83/b so far in May, while posting similar increments against Platts M1 Cash Dubai and the front-month ICE Brent futures contract over the same time period.
The Arab Light May OSP was set at minus USD7.30/b, minus USD6.85/b for Upper Zakum, and Qatar at minus USD7.10/b for its Marine grade.
"The May UZ OSP is Dubai minus USD6.85/b, if (producers like) Saudi and SOMO don't cut (their prices) more, that means Upper Zakum is cheaper than Arab Light, Basrah Light etc," said a crude trader with a China-based company earlier this month.
As MRC reported earlier, in October 2019, McDermott International announced that it had been awarded a contract by Saudi Aramco and Total Raffinage Chimie (Total) for their joint venture (JV) Amiral steam cracker project at Jubail, Saudi Arabia. Amiral is a JV in which Aramco holds 62.5% and Total the rest. The plant, designed to produce 1.5 million metric tons/year (MMt/y) of ethylene, will be one of the world's largest mixed-feed crackers.
Aramco and Total launched their USD5-billion Amiral JV project in October 2018. The steam cracker will be fed with a mixture of 50% ethane and refinery off-gases. It will supply ethylene to a downstream 1 MMt/y polyethylene manufacturing complex and other petrochemical products. The project aims to fully exploit operational synergies with the adjacent refinery, owned by Satorp, another JV between Aramco and Total. Third-party investors, including Daelim and Ineos, will locate plants at the value park adjacent to Amiral with a combined investment of USD4 billion. A final investment decision is expected in 2021.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.