Saudi August OSPs set to jump on soaring backwardation, cracks

4 Jul 2022

Quantum Commodity Intelligence - Saudi Aramco, the world's top crude exporter, is expected to sharply increase Official Selling Prices (OSP) for August to its key customer base in Asia, following last month's surging backwardation and buoyant refining margins.

According to Quantum data, the key M1/M3 Dubai cash spread, closely monitored by Aramco, averaged $7.54/b in June compared to $5.13/b in May, indicating a hike of around $2.50/b in August for its flagship Arab Light grade.

However, sources familiar with Saudi OSP methodology said a greater weighting is applied towards the end of the month, which averaged more than $8/b from 20-30 June, according to Quantum data.

For July-loading barrels, differentials for Arab Light were set at Platts Dubai/DME Oman +$6.50/b, compared to +$4.40/b in June and a record +$9.35/b in May.

Other grades followed suit for July, with Arab Medium up to $6.15/b from +$4.35/b and Arab Heavy at +$4.80/b versus +$3.00/b in June. July Arab Extra Light was set at $7.15/b versus Dubai/Oman +$4.65/b in June.

As such, Arab Light is expected to challenge the all-time high, although it could stop just short of the +$9.35/b.

Super Light and Extra Light are likely to challenge respective record highs of +$10.65/b and +$9.60/b, underpinned by last month's record distillate and gasoline cracks.


Similar grades to Arab Light, such as Al Shaheen, Oman and Upper Zakum, traded last month at premiums of around +$9/b to the underlying Dubai swap, which is also seen as an indicator for OSP differentials.  

Aramco is also believed to factor product cracks into its OSP methodology, which would support an additional increase after record margins in distillates, gasoline and marine fuel.

While refiners can comfortably absorb the steep increases through huge margins, the hikes will add to the overall burden of higher oil prices across Asia.

Quantum's monthly average price for front-month August-loading Dubai crude last month was $113.24/b, up from the July-loading average of $108.13/b, or a gain of 4.7%, and the highest since 2008 when July (September loading) averaged more than $130/b.

The previous high since 2008 was in March of this year at $110.89/b, which coincided with Russia's invasion of Ukraine.

OSPs for Europe and the US, which collectively account for less than a third of Saudi crude sales, are also expected to see healthy increases.

OSPs for all regions are expected to be released on 5 July.