Market data supports modest cuts to Saudi June Asia OSPs – Quantum

London (Quantum Commodity Intelligence) - Saudi Aramco, the world's top crude exporter, is expected to release its closely monitored Official Selling Prices for June on Wednesday and is expected to cut differentials for Asia, according to sources and Quantum data.

While Saudi does not reveal its methodology to the market, it is believed that Aramco's analysts and marketers look at a broad variety of indicators; this includes supply/demand fundamentals, market structure, refining margins and competing crudes, as well as taking feedback from customers.

The fall in Indian demand and subsequent sharp narrowing in June/July backwardation points to a cut in OSPs, particularly with Asia's second-largest consumer set to lose 700,000-900,000 bpd in demand in May.

Saudi Aramco's sales to Asia are priced as a differential to Platts Dubai/DME Oman, with each benchmark given equal weighting in the formula.

According to Quantum Energy Data, the June/July Dubai spread retreated from around +$0.40/b to near parity during the final week of April.

This would typically trigger a cut in OSPs, as it would be seen as a strong indicator of falling demand and weakening fundamentals.

However, the Jul/Aug structure has held firm, assessed by Quantum Tuesday at $0.50/b, suggesting that last week's narrowing front-month spread was a blip rather than a precursor to a significant weakening trend in market dynamics.

The July/September spread, used as a measure of Dubai cash vs Dubai swaps, was assessed at +$0.95/b Tuesday. DME Oman followed a similar pattern to Dubai.

Asian refining margins have also been firming, led by gasoline cracks and also stronger distillate margins.

Gasoline cracks for nearby - namely spot and the front two months swaps contracts- hit their highest level in more than a month this week ahead of what is expected to be a return to a more normal summer driving season in the US and Europe.

A similar picture has been seen for jet kero cracks in Asia, which have risen on the expectation of a rising number of passengers after both US and European agencies highlighted strong growth in air travel.

Customers will likely call for a larger cut to OSPs, but the metrics point to a modest reduction of $0.10-$0.20/b, particularly for Aramco's flagship Arab Light grade.

For May loading, Arab Light was increased by $0.40/barrel to +$1.80/b, while Arab Medium was increased by $0.50/b to +$1.45/b.