06 Jun 2022 | 02:42 UTC

Crude oil futures trim gains after early surge on Saudi OSP hike

Highlights

Saudi Aramco raises Asia-bound Arab Super Light by $2.75/b

Oil market to remain tight for time being

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Crude oil futures edged higher in mid-morning trade in Asia June 6 after surging by more than $2/b at the open, as Saudi Arabia aggressively hiked its official selling prices for Asia in a sign that it expects demand to remain robust despite soaring oil prices.

At 10:39 am Singapore time (0239 GMT), the ICE August Brent futures contract was up 99 cents/b (0.83%) from the previous close at $120.71/b, while the NYMEX July light sweet crude contract rose 99 cents/b (0.83%) at $119.86/b.

Saudi Aramco raised all of its OSPs across Asia, Europe and the Mediterranean for July-loading cargoes and kept US differentials unchanged, with Asia-bound barrels seeing the largest increases of between $1.80/b and $2.75/b, according to a pricing document released June 5.

Aramco had been expected to raise its Asia-bound July OSPs by around $1.50/b after lowering them for June, mirroring the rise in the benchmark Platts Dubai sour crude complex in May, sources told S&P Global Commodity Insights.

The OSP hike propelled the August ICE Brent crude contract to an intraday high of $121.95/b, while the front month NYMEX crude contract was now at highs not seen since early-March when it briefly topped $130/b.

"Mere days after opening the spigots a bit wider, Saudi Arabia wasted little time hiking its official selling price for Asia, its primary market," SPI Asset Management's managing partner Stephen Innes said in a June 6 note.

"Saudi Light OSP jumped, seeing knock-on effects at the Futures Open across the oil market spectrum."

Aramco's move will do little to curb fears of a tight oil market that has seen refined product inventories in the West fall to multi-year lows. Analysts noted that the OPEC+ producer group's pledge last week to raise their monthly production quotas, as well as US President Joe Biden's plan in April to release 1 million b/d of oil from its reserves, has failed to slow the rise in oil prices.

"Refined product markets continue to reflect significant tightness, with plenty of strength in refinery margins over the last week," ING analysts Warren Patterson and Wenyu Yao said.

"There is no quick fix to this tightness in the products market. We will have to see either demand destruction or increased run rates from refiners," they added.

Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia June 6 from the previous close.

The August Dubai swap was pegged at $108.72/b at 10 am Singapore time (0200 GMT), up $3.24/b (3.07%) from the June 3 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $2.98/b at 10 am, up 9 cents/b over the same period, and the August-September intermonth spread was pegged at $2.32/b, up 4 cents/b.

The August Brent/Dubai EFS was pegged at $11.64/b, up 10 cents/b.