Saudi Arabia's national oil company, Saudi Aramco, announced a reduction in its official selling prices (OSP) for crude oil destined for Asia in December. The move was welcomed by Asian traders, who had anticipated the adjustments due to several supply and demand factors in the region. The reduction is mainly in light crudes, while heavier crudes, potentially affected by supply constraints, see more moderate declines.
OSPs for flagship crude, Arab Light, were reduced by 50 cents per barrel, setting a new rate at $1.70 per barrel above the average price of Platts Dubai and Oman. The other light crudes, Arab Extra Light and Super Light, also saw reductions of 50 cents per barrel for December. In contrast, heavier Arab Medium and Heavy crudes recorded a decline of only 40 cents per barrel.
Market Expectations and Trader Reactions
Traders and end users in Asia expected discounts in the 40-70 cent range for light grades, a level in line with the monthly change in Dubai's structure, a factor regularly taken into account by Aramco when adjusting its PSOs. Flagship crude, Arab Light, saw a slightly lower cut than market expectations, which called for a decline of between 60 and 70 cents per barrel for the lightest crudes, due to fluctuating demand in the Asian region.
In October, the average price of Dubai Cash for the month showed a $1.58 premium over futures, marking a decline of 45 cents from the previous month. This lower level reflects the decline in premiums in the Dubai market, thus influencing Aramco's adjustments for its sales in Asia.
Maintenance and Supply Outlook
Discussions around possible maintenance operations for certain Saudi crude fields, including medium and heavy crude, continue to fuel speculation about a potential reduction in supply. This work, although not confirmed by Saudi Aramco, could affect supply for the November and December cycles. Confirmations of allocated volumes for December and January cargoes are expected to be released in the coming weeks by Aramco, clarifying the supply outlook for the coming months.
Some market participants believe that the upcoming loading period for January could be marked by an oversupply of certain sour crude grades, thereby fueling bearish sentiment for this period. Recent assessments of Dubai Cash have shown significant weakening, with the spread against futures reaching historic lows for the year 2024.
Expected Improvement in Refining Margins in Asia
Despite the backdrop of falling crude prices, the short-term outlook for Asian refiners appears to be improving. Demand for the end of the year, supported by travel and heating needs, should contribute to a gradual recovery in refining margins, after several months marked by particularly low margins.
Refining margins, calculated based on netback from Dubai to Singapore, averaged $4.67 per barrel for the month of November through the 5th, compared to an average of $1.65 in October and only 9 cents in September. Oil and refinery analysts in Asia hope this improvement will continue, with margins remaining at higher levels in the coming months.
