OIL AND GAS 360 PUBLISHERS NOTE: We see this as the major driver of downward oil prices today, with session trading as low as $36.13 early in the CL trading session.
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Jeslyn Lerh: Link to article
Singapore — The contango spreads for benchmark Dubai crude futures were wider in the trading week starting Sep. 7 despite cuts to official selling prices by Saudi Aramco over the weekend
The October/November spread was pegged at a contango of 23 cents/b at 11 am in Singapore (0300 GMT), widening 7 cents/b from the 4:30 pm (0830 GMT) Asian market close on Sept. 4, S&P Global Platts data showed.
The November/December spread was pegged at a contango of 29 cents/b, widening 6 cents/b over the same period.
Despite the cuts in latest OSPs, industry sources said persisting poor cracking margins were expected to continue to weigh on demand from Asian refiners.
“As widely expected, Saudi Aramco lowered its October official selling prices, but still provides bearishly poor optics… to encourage China to keep the flow of crude moving, amid a worrying signpost that the world’s biggest exporter sees fuel demand waffling as global pandemic flare-ups dot the landscape,” AxiCorp chief global markets strategist Stephen Innes said in a note Sept. 7.
Refining margins are showing little sign of recovery as a resurgence in COVID-19 cases globally weighs on the demand outlook for oil markets, and the sour crude market is hence expected to remain in contango for the near term.
Saudi Aramco lowered its October official selling prices for crude supplies to Asia in a pricing letter on Sept. 5. The differential to Asia for Arab Light was cut by $1.40/b to a discount of 50 cents/b against Oman/Dubai, while Super Light and Extra Light were reduced by $1.50/b, Arab Medium by $1.20/b and Heavy by 90 cents/b.
Refinary Update –
Janet McGurty – Link to source
New York — Refiners are seeing margins weaken around the world on ample refined product supply and high crude stocks, while Saudi Arabia is cutting its official October crude selling prices in an attempt to incentivize crude buying, an analysis from S&P Global Platts showed Sept. 8.
Weak refining margins and uncertainty about the pace of the demand recovery resulting from the global impact of the coronavirus pandemic stand in the way to Saudi Arabian crude sales.
This is particularly true in the Asian market, where the Kingdom again finds itself going head-to-head with Russia for a share of the Chinese refining market.
Saudi Arabia’s price cut to Asia was deeper than expected “in order to incentivize more crude buying from Asian refiners who bought less September-loading volumes … due to a less OSP (official selling price) cut,” Platts Analytics said in a recent research report.
“There are also challenges of Russian grades with more arbitrage incentives and high crude stocks in China,” the report said.
For the week ended Sept. 4, the Arab Light cracking margin for China averaged minus $3.80/b, compared with minus $3.09/b a week earlier, Platts Analytics margin data shows.
Saudi margins since the end of July have been eclipsed by Russia’s Urals, which averaged minus $2.87/b for the week ended Sept. 4, compared with minus $2.57/b a week earlier.
This margin disparity helped incentivize Saudi Aramco to drop October’s Arab Light official selling price differential by $1.40/b to minus 50 cents/b for Asian buyers from September levels.
Platts Analytics margin forecasts anticipate that Arab Light margins in October will average 30 cents/b for the month. No forecast was available for Urals.
However, planned work in Asia is likely to dampen any strong margin rise.
Overall, Saudi Arabia’s crude exports are expected to stay above 6.9 million b/d in the fourth quarter of 2020, Platts Analytics forecasts.
European price cuts less deep
Saudi Aramco’s official selling price cuts for European buyers were smaller as it looks “to reverse the disincentive to buy Saudi grades instead of Urals,” Platts Analytics said.
The differential for Arab Light barrels to Northwest European refiners was cut by 20 cents/b from September’s OSP to minus $2/b for October delivery.
But Northwest European refiners are still seeing a margin premium in processing Urals. Urals cracking margins for the week ended Sept. 4 averaged minus 12 cents/b, compared with minus 87 cents/b for Arab Light.
Mediterranean refiners will see a 40 cent/b discount for October barrels of Arab Light, to minus $1.60/b compared with September prices. CPC margins remain in positive territory for regional refiners, averaging $1.61/b for the week ended Sept. 4, but were weaker than $2.12/b a week earlier.
Med Arab Light margins rose over the last two weeks, with Arab Light cracking margins averaging minus $2.13/b for the week ended Sept. 4 compared with minus $2.84/b for the week ended Aug. 28.
US maintenance looms
OSPs to the US were cut “more aggressively” than to Europe on concerns of less buying on refinery maintenance in the US, Platts Analytics said.
In October, US buyers of Arab Light will pay 60 cents/b less than they did in September, putting the differential at minus $1.05/b.
US refinery outages for planned work and upgrading are expected to average 4.06 million b/d in September and 3.86 million b/d in October, according to Platts Analytics data.
This compared with 4.09 million b/d off line in August, which includes the impact of refinery shutdowns ahead of Hurricane Laura, which made landfall on Aug. 27 on the coast of Louisiana, impacting plants in Lake Charles, Louisiana, as well as Port Arthur and Beaumont, Texas.
While two Lake Charles refineries are still down and Louisiana struggles with getting power restored to the region, overall US Gulf Coast margins have dropped on the “faster-than-expected recovery of the Gulf Coast refining system from Hurricane Laura and continued weakness in crack spreads,” wrote Phil Gresh, JP Morgan analyst in an Sept. 8 research note.
Gresh notes that even though USGC gasoline markets are holding up better, with USGC gasoline levels at their lowest level since April, the “changeover to the winter blend is now in process, which is leading to seasonally lower margins.”
