Spot differentials for Abu Dhabi's crude oil loading in October, including key grades Murban and Upper Zakum, are expected to rebound after steep cuts were made to the grades' September official selling price differentials, market sources said Aug. 11.
Abu Dhabi National Oil Company on Aug. 10 slashed the OSP differentials of its crude grades loading in September by 90 cents/b to $1.30/b from the August levels. In comparison, market participants surveyed by S&P Global Platts had expected ADNOC to make cuts of between 30 cents/b and $1/b to its OSP differentials.
"ADNOC OSP [differentials for September loading barrels] are not too bad at all, especially after those Aramco OSPs. The market will still trade in discounts [versus their respective OSPs], but it could have been much worse had ADNOC only deducted 50 cents/b," a crude oil source from a European trading house said, as demand was still weak with ample supply.
ADNOC's OSP cuts were deeper than Saudi Aramco's, which lowered its September OSP differentials by 30 cents/b to 60 cents/b, for different grades bound for Asia.
Spot differentials for Middle East sour crude, in the September loading trade cycle, had fallen into deep discounts following the third consecutive month of OSP hikes in July, with demand remaining weak as Asian refiners grappled with limited recovery in margins, sources said.
However, with the larger-than-expected OSP differential cuts issued Aug. 10, traders expect October loading Murban and Upper Zakum to trade at discounts of a smaller extent than the steeper $1/b levels in July.
"ADNOC didn't follow Saudi's cuts. [Upper Zakum] cuts are better than our expectations," a Northeast Asia-based crude oil trader said.
ADNOC slashed the September OSP differentials for Upper Zakum by $1.30/b from August to a premium of 65 cents/b against Platts Dubai, according to a company notice from ADNOC on Aug 10.
Meanwhile, the company had set the September OSP of its Murban crude at Platts Dubai plus 85 cents/b, down 90 cents/b from August.
The Dubai cash/futures or M1/M3 spread -- a key indicator of spot market sentiment for sour crude in Asia -- fell from an average of plus 84 cents/b for the whole of June to plus 71 cents/b for July, demonstrating the market's weakness.
However, within July itself, the Dubai M1/M3 spread weakened from a premium of $1.29/b at the start of the month on July 2 to minus 20 cents/b on July 28 -- the first time it had flipped into a discount in two months, Platts data showed.
"The ADNOC cuts [for September] are good for the market. Demand is not so good and margins are still not picking up. There is a lot of supply and OPEC is also paring back their cuts," a source from a Chinese refiner said.
Middle Eastern crude supply is expected to increase as the OPEC+ alliance will ease their production cuts to 7.7 million b/d in August until the end of the year, from 9.7 million b/d in May, Platts earlier reported.
