Saudi Aramco may cut the official selling price differentials for September-loading crude cargoes for export to Asia amid weak refining demand in the region, most of the traders said this week.
"I think there will be a little cut, not big, across the board," a trader at a trading house said.
Saudi Arabia's main export grades are Arab Light and Arab Medium, the August OSP differentials to the monthly average of Platts Oman and Dubai assessments for which were set at a premium of $2.05/barrel and 5 cents/b respectively.
The formula, which typically uses the difference between Platts Dubai crude cash and swap assessments over the last five trading days of a month, is understood to play a role in setting the OSP differential for Arab Light. Some traders said they expected this formula to be abandoned for September-loading cargoes due to the underlying weakness in demand for crude oil from Asian refiners.
This follows sluggish gasoil cracks, which in turn has led to low margins in recent weeks.
In the last five working days of July, the spread between September cash Dubai and September Dubai swap averaged 77 cents/b, against an average of 69 cents/b in the last five days of June, according to Platts data.
Traders said they expected cuts of around 20-30 cents/b in the differential for Arab Light. One trader even put the cut at 70 cents/b due to the weak demand currently.
For Arab Medium, a trader said he expected a similar cut of around 25-30 cents/b. The cut in differential for Arab Heavy was likely to be less, around 15 cents/b, he added, citing some stability in the fuel oil crack to Dubai through July.
The discount of FOB Singapore 180 CST high sulfur fuel oil cracks for one month forward against Dubai crude oil narrowed to an average of $10.60/b in July, compared with $10.76/b in June.
The Arab Heavy OSP for August was set at a discount of $2.80/b to the average of Platts Oman and Dubai assessments.
The differential for Arab Extra Light, which for August was set at a premium of $3.95/b to the average of Platts Oman and Dubai assessments, could see a cut of between 15 cents/b and 20 cents/b with gasoil cracks edging lower throughout July.
Month on month, the gasoil crack swap to Dubai fell 23 cents/b to average $13.73/b in July, significantly lower than the average of $16.97/b seen in the first half of this year.
