MOSCOW (MRC) -- Middle East crude producers Saudi Aramco and Abu Dhabi National Oil Company will likely raise the official selling price differentials of their respective crude for the third consecutive month on the back of a strong uptick in the region's crude structure, market participants said, said S&P Global.
Aramco is expected to raise the OSP differential of its Arab Light crude bound for Asia in August by between 80 cents/b to USD3/b, participants surveyed by S&P Global Platts said this week.
Earlier in June, the oil producer raised the Asian OSP differential of the crude by USD6.10/b from minus USD5.90/b for June to a premium of 20 cents/b for July. The main driver for the expected rise in OSP differentials is the uptick in the benchmark Dubai crude structure, reflected by the spread between physical cash Dubai and same-month Dubai futures, also known as the M1-M3 spread.
The spread has risen largely due to supply side factors, with OPEC+ alliance extending the production cut of 9.6 million b/d to July. The alliance have also increased pressure on Iraq, Nigeria, Angola and Kazakhstan to comply with the deal, with compensatory cuts expected to be made over July-September in addition to the countries' set quotas.
A key price indicator for Middle East sour crude market, the M1-M3 spread has risen to average at 83 cents/b premium in June so far -- the widest since January, and up USD3.56/b from minus USD2.73/b average over May, Platts data showed.
The price indicator, tracked by Middle East producers to define the core direction and extent of price hikes or cuts, suggests that producers could raise their respective OSP differentials for August. Similarly, Platts cash Oman spread to Dubai futures has risen USD3.31/b from minus USD2.44/b average in May to a premium of 87 cents/b in June.
"Our model says USD3/b increase but [it also] depends on production increase I believe," said a Singapore-based crude trader with a European oil firm. Middle East producers will likely pare down the potential increase in their respective OSPs in view of oil product cracks, which have risen from previous month but have remained largely fragile, some said.
Participants surveyed also indicated that they expect the medium, heavy crude grades to receive a larger increase compared to the lighter grades.
As MRC informed earlier, Saudi Aramco on June 17 said it completed the share acquisition of a 70% stake in petrochemicals company Saudi Basic Industries Corporation, or SABIC, from the Public Investment Fund, the sovereign wealth fund of Saudi Arabia, for a total purchase price of Riyal 259.125 billion (USD69.1 billion). However, the transaction terms have been changed to increase the timeline over which Aramco makes the payments by almost three years. An upfront cash payment of 36% of the deal value has also been eliminated from the deal.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian national oil and natural gas company based in Dhahran, Saudi Arabia. Saudi Aramco"s value has been estimated at up to USD10 trillion in the Financial Times, making it the world"s most valuable company. Saudi Aramco has both the largest proven crude oil reserves, at more than 260 billion barrels, and largest daily oil production.
MRC