Saudi Aramco June OSPs likely to drop as sour crude complex weakens

Saudi Aramco is expected to lower its official selling prices for June-loading crudes following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs seen this month, market sources told S&P Global Commodity Insights.

Earlier in April, Saudi Aramco raised its official selling prices for Asia-bound crude loading in May by a range of between $2.70/b and $4.40/b to the highest ever recorded, S&P Global data showed.

The June OSPs will likely be slashed by $4-$6/b from May levels, trade sources said in the week ending April 29.

"June OSP should be down from previous month, reflecting weaker trading fundamentals. Maybe by at least $4-$5/b down from previous month, the Dubai structure is lower too," said a Japan-based crude oil trader.

The Dubai cash/futures spread -- understood to be a key element in OSP calculations -- averaged $3.65/b over April, down from an average of $9.25/b in March, S&P Global data showed.

"June OSP adjustment will be as per market structure, maybe reduce by at least $5-$6/b," said a regional crude oil trader.

Asian demand is likely to drop in the new July trading cycle as China battles another wave of the coronavirus resurgence, while Japanese demand could remain lukewarm amid some turnarounds, traders said.

"Based on the current situation, I assume producers must reduce [June-loading] OSPs," said a China-based crude oil trader.

With the expected drop in OSPs, traders anticipate Asian refiners to maximize their term volume nominations.

"Term buyers will continue to take maximum term allocation, they won't want to take cargoes at the mercy of spot market which changes too quickly," the second Singapore-based crude oil trader added.

Demand fundamentals

Demand sentiment for July-loading barrels of Middle East crudes remained mixed among Asian buyers, although Indian demand could offer some buy-side support.

China continues to battle fresh coronavirus outbreak through lockdowns and additional testing, while Japanese refinery turnaround season could keep fresh demand subdued, traders said.

Far East Russian crudes meanwhile, have also failed to grab sufficient interest from Asian refiners.

Earlier this week, Russia's Rosneft Oil Company failed to attract buyers in its sell tender for May-loading barrels of Far East Russia's ESPO Blend and Sokol crudes.

Asian buyers avoided trading Russian oil amid concerns over reputation, payment and logistics, leaving Russian energy supplies reeling despite competitive prices.

India could pivot away from Russian crude to Middle East energy supplies instead, after US President Joe Biden urged Indian Prime Minister Narendra Modi to diversify the country's oil imports away from Russia during a virtual meeting earlier in April.

"Indian crude demand may also turn away from Russian crude and shift towards Middle East grades, that may also offset the impact from weaker Chinese demand," said the Japan-based crude oil trader.

Although Chinese refiners could still be taking Russian crude, volumes may be limited as their refinery runs have been lower, according to a Singapore-based crude oil trader.