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Wednesday, December 07, 2022

Saudi Arabia raises oil prices despite record discount for Russian crude oil | Nation World News

Russia’s invasion of Ukraine has at the same time both facilitated and complicated the task of Middle Eastern national oil companies. On the one hand, it pushed the decline in the Brent even steeper, making any flow from Europe to Asia uneconomical, protecting the usual outlets for Saudi Arabia or Iraq. At the same time, the risk of seeing Russian supply approved led to oil prices soaring above $ 120 per barrel, making the direct base of March freight remarkably profitable. On the other hand, people like Saudi Aramco and SOMO had to raise prices, in fact, they could do so even more significantly, as arbitrage flows would most likely be weak in April 2022, but it could further antagonize all Asian buyers who keep worrying about unprecedented high prices. So there was a very fine line to walk, especially considering that the ghost of an impending Iranian nuclear deal never really left the decision-making space. Graph 1. Saudi Aramco’s official selling prices for Asian freight (compared to the Oman / Dubai average).

1648489091 O 1Fv8Pmhi41C5R11761F2Q1Mvf1L2D8

Source: Saudi Aramco.

For the second time in a row, Saudi Aramco has increased all its official selling prices, regardless of the respective continent. Asia-bound April OSPs were raised by $ 2.15-2.70 a barrel, coming on the back of record-high Dubai backlinks as the M1-M3 Dubai spread rose above $ 4 a barrel, or nearly $ 2 a barrel barrel higher than last month. The major Saudi export streams – Light, Medium and Heavy – all jumped the same $ 2.15 a barrel, breaking previous all-time highs. While Saudi Arabia in general is still a long way from there to bring total crude production back to pre-pandemic levels, its exports to Asia have already moved in there and moved around 5.7 million b / d this month.
Looking ahead, with the Dubai forward structure getting steeper further, the May 2022 OSPs will inevitably see another month-on-month increase. For Asian countries that, unlike India and to a lesser extent China, are not willing to pick up Russian barrels at great discounts, spring will bring quite the refining margins as they are forced by the market to continue to Middle -Eastern crude oil for sale.

Graph 2. Saudi Aramco’s official selling prices for US freight (versus ASCI).

1648489100 O 1Fv8Pmr48C0F1Lni18Jg1Jmv1Kh98
Source: Saudi Aramco.

Looking back, those who have decided to maximize their ADNOC term nominations for April 2022 will be rewarded with an official sale price that seems more than tasty under the current circumstances. Based on the monthly average of Murban futures traded on a Singapore basis, the UAE national oil company ADNOC set the April price of the Emirati flagship grade at $ 93.99 per barrel, almost $ 9 per barrel, but still a path to go to the present. price levels. Inevitably, today’s bargaining transactions will turn out to be completely bad from a price perspective – IFAD Murban was almost completely equal to ICE Brent in the first two decades of March – when the unchanging expectations of oil prices finally fall. ADNOC also reduced Bo-Zakum’s differential to the largest discount on Murban since it began trading on IFAD, at $ 2.05 a barrel in April, more than 50 cents from March. This could be a reaction to Ural, an immediate counterpart of Zakum, which makes tangible invaders in India and China, or also a reflection of its increasing availability – March exports have so far averaged 950 000 b / d, the highest since the export disease in April 2020.

Graph 3. ADNOC Official Sales Prices for April 2022 (fixed straight, here compared to Oman / Dubai average).

1648497487 O 1Fv91Moh8Gdp1Ku3165613Unlfu8
Source: ADNOC.

In the footsteps of Saudi Aramco, Iraqi state oil marketer SOMO has also increased all of its April cargo formula prices. SOMO’s Asian pricing strategy is particularly interesting as Iraqis have increased Basrah Medium and Basrah Heavy by $ 2.20 per barrel and $ 2.00 per barrel, respectively. In the case of Basrah Medium, this means that the month-on-month change was marginally higher than that in Saudi counterparts. Yet this is only part of the comparison as SOMO prices its loads on the basis of dated Brent, which in the current period of unprecedented decline is a few dollars of a premium above the futures contract of ICE Brent, the price base of Saudi Aramco. If Iraq wanted to create a tailor-made solution that reflects this trend, it should have lowered prices rather than increased them in the same way that Saudi Aramco did, insinuating that Baghdad expects the current market squeeze to be in place for some time to come. will remain similar to the profitability of Atlantic Basin inflows.

Graph 4. Iraqi official selling prices for Asian freight (compared to Oman / Dubai average).

1648489149 O 1Fv8Poatui8O7T8Bsj1U6Jput8Source: SOMO.

Production issues could help explain (in part) SOMO’s price power, with the West Qurna-2 game taking a few weeks of field maintenance. The initial plan was to halt the field for 21 days so that upgrading works could be carried out to increase the production capacity of West Qurna-2 to 450 000 b / d, but the stock levels at the field apparently dropped to critical levels and the Iraqi authorities resumed the field by March 10. Whether West Qurna-2 has been upgraded or not, there seems to be no official confirmation, what we do know for sure is that Iraq’s crude oil production this month will reflect this wave of chaos. Meanwhile, outflows to Europe seem to have taken the primary hit from weaker Iraqi availability – so far in March, only seven loads have been loaded into Europe, about a third of the number in February.

Graph 5. Iraqi official sales prices for European cargo (dated opposite Brent).

1648489158 O 1Fv8Pojj0C5P2Hn1Rjn7Nk1Pti8
Source: NIOC.

Iran’s national oil company NIOC took some time to issue its official sale prices of April 2022, and it was published almost two weeks after Saudi Aramco did so, probably driven by the anticipation of a prospective deal that nonetheless still has a hooked up. NIOC priced its Iranian light and Iranian heavy loads going to Asian buyers more favorably than its Saudi counterpart, which increased the April OSP by $ 2.05 per barrel and $ 1.95 per barrel, respectively. That said, Iran appears to have reduced its crude exports recently, coming on the back of growing rumors of a potential JCPOA deal.

Related: UAE Energy Minister: Stop insulting oil producers and then honor oil producers

With a peak in December 2021 at around 850 000 b / d, Iranian outflow has lost steam so far this year and dropped around 100 000 b / d from those levels. Exports are still dominated by Asian purchases (i.e. the usual way to send initial loads to Malaysia, to be shipped from there to China), with a steady flow of crude oil going to Syria.

Graph 6. Iranian Official Sales Prices for Asia-bound Freight (vs. ICE Bwave).

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Source: NIOC.

As for the Iranian nuclear deal itself, last month’s developments have been an emotional rollercoaster. First, Russia tried to eliminate an emerging agreement by demanding guarantees, mainly from the United States, that it would be free to trade and trade with Iran should a new nuclear deal take place. Long deliberations followed and just when the overall momentum seemed to have stalled, Moscow apparently received those guarantees. By that time, Iran had already released the political prisoners he held in Tehran, so a revived covenant seemed a real possibility. From then on, however, parties have resorted to mutual accusations, indicating that it is primarily political will that is currently lacking to push through an agreement.

Graph 7. Kuwaiti Official Sales Prices for Asian Freight (vs. Oman / Dubai Average).

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Source: KPC.

Kuwait, whose production and total exports have been relatively stagnant since November 2021, have traditionally reflected Saudi Aramco’s shifts, although this increased the April 2022 Asia-bound OSP of its mainstream, KEB, by $ 2.25 per barrel (i.e. say 10 cents per barrel more). With KEB priced at a premium of $ 4.80 per barrel compared to the Oman / Dubai monthly average, Kuwait will also see record highs next month – the same is true of Kuwait’s marginal 75,000 b / d KSLC flow as the superlight crude oil is fixed is at a $ 5.95 per barrel premium to Oman / Dubai, the highest since the degree began trading. At the same time, the top echelon of Kuwait’s petroleum company KPC has recently seen some changes, with Sheikh Nawaf al-Sabah appointed as the new CEO – although after spending more than 20 years in the company, it is unlikely that such corporate reshuffle any changes in KPC’s overall policy.

By Gerald Jansen for Oilprice.com

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