As November 2022 approaches, knowing that intra-OPEC+ cohesion has been fully restored and the oil major has been given a new long-term ambition, pricing decisions for Middle East cargoes loaded on next month have faced a strange dilemma. A significant reduction in supply would certainly merit a corresponding rise in OSP, however, what to do with the pervasive fears of a yet unseen recession to come? After all, the US Federal Reserve is increasingly concerned that it sees no signs of easing inflation and is now expected to reach a consensus target policy rate of 4.5% by March 2023. Similarly, China’s oft-talked-about return from its lockdown frenzy hasn’t been particularly stellar — the CCP’s Beijing summit demonstrated that the country’s political track is far more fleshed out than its economic track.
Figure 1. Official Saudi Aramco selling prices for Asian cargoes (compared to Oman/Dubai average).\
Source: Saudi Aramco.
Looking at Dubai futures alone, the spread between cash and Dubai futures has increased by around 50 cents per barrel compared to the August 2022 average, so Saudi Aramco and its peers in the Middle East were to raise formula prices. The real question was how much of that was, especially if NOCs took into account the then-negotiated OPEC+ decision and the general gloom in commodity markets. Saudi Aramco surprised with its Asian prices, moving from October Arab Light OSP, probably the most followed of them all, and keeping them at a premium of $5.85 a barrel to Oman/Dubai. The heaviest grades, namely Arab Medium and Arab Heavy, rose only 25 cents a barrel each, recouping some of the losses recorded last month. While regional medium sour prices suffered last month in Europe, Saudi Aramco saw a uniform decline in Northwestern Europe and the Mediterranean, dropping Arab Light by $1.50 a barrel from of October and the heavier grades of $1.80 per barrel month over month. .
Related: BofA sees Saudi Aramco quarterly profit decline
Figure 2. Saudi Aramco’s official selling prices for shipments to the United States (vs ASCI).
Source: Saudi Aramco.
One of the most interesting geopolitical undercurrents in Saudi crude prices has been the increasingly rocky relationship between Riyadh and Washington. Amid several court cases directly involving Saudi Crown Prince Mohammed bin Salman – including one in the US District Court of Columbia where he is charged. This specific trial created all sorts of problems at the White House (the US Department of Justice repeatedly asked the court to postpone the hearings, still unable to rule on the crown prince’s sovereign immunity). Amid all this, Saudi Aramco continues to raise prices for OSP-linked formulas – they haven’t come down in over a year already – with Arab Light already at a premium of $6.35 a barrel. compared to the ASCI. As things stand, the already weak Saudi flows to the United States are set to weaken further.
Figure 3. Official ADNOC selling prices for October 2022 (stated purely and simply, here compared to the Oman/Dubai average).
Source: ADNOC.
One of the few oil and gas powers consciously reaping the benefits of high energy prices, the UAE knows full well what cash cow it has in ADNOC. Amid an ever-present economic catastrophe, the Emirates’ GDP is expected to grow by 5.4% this year (and another 4.2% in 2023) and ADNOC’s rejuvenated divestment program could add a billion or two to that. total. However, with ADNOC’s adoption of an exchange-fixed pricing formula, market insecurities also carried over into the November 2022 OSPs. Based on IFAD’s monthly average for the past month, the price Murban Fixed Price was calculated at $92.45 a barrel, down nearly $6 a barrel from October. Additionally, the Murban-Dubai spread continued to contract for the third consecutive month, falling to a third of its peak of $4.6 per barrel in August, implying that the profitability of light and sweet grades on the Asian market leaves much to be desired. In contrast, ADNOC’s Average Acid Upper Zakum has further reduced its discount on Murban, with the differential in November settling at -$1.70 a barrel.
Figure 4. Official Iraqi selling prices for shipments to Asia (vs Oman/Dubai).
Source: SOMO.
After months of disarray and friction, Iraq took a giant step last month in creating some form of stability and governance in the country by aligning itself with a new president and appointing a new prime minister – former water resources minister Latif Rashid will become the first, while the second post will go to Mohammed Shia al-Sudani, the country’s former human rights minister. If the two were elected, we could see a flurry of new activity in Iraq starting in mid-November, as many high-impact projects have effectively stalled this year due to lack of regulatory approvals, ministerial decisions, and the like. of Basra’s export capacity. Finally, it looks like Baghdad will have the opportunity to spend the windfall revenue it generated in 2022. Looking at the November 2022 PSOs, Iraqi prices in Asia have seen more pronounced changes than Saudi Aramco’s.
Figure 5. Official Iraqi selling prices for shipments to Asia (vs dated Brent).
Source: SOMO.
Sticking to the concept that the higher the grade, the bigger the month-over-month upside, Basrah Heavy is up 40 cents per barrel (at a discount of -$2.1 per barrel relative to the Oman/Dubai Medium) while Basrah Medium will be at $1.70 per barrel. O/D barrel premium, up 30 cents a barrel from October. With Europe, Iraqi state oil distributor SOMO opted for moderate declines of -$0.1/-$0.4 a barrel. Unlike Asia’s generally favorable deep conversion, however, heavy sour Basrah Heavy was cut the most and its -$13.95 per barrel discount to November-dated Brent is the cheapest than Iraqi grade. has been since its introduction to the pricing formula. in 2015. Even taking into account the flattening of the backwardation in September, it would be safe to assume that the relatively favorable prices for the Iraq buyer are a signal for European refiners to consider the Iraqi options for 2023, a once the EU sanctions against Russia come into force.
Figure 6. Official Iranian selling prices for shipments to Asia (compared to Oman/Dubai average).
Source: NIOC.
Taking inspiration from the pricing formulas of Saudi Aramco and SOMO (both of which published their PSOs ahead of NIOC), Iran’s national oil company decided to stick to a simple policy line. For Asia, it upped its light flagship Iran by 10 cents a barrel (at a premium of $5.65 a barrel to Oman/Dubai). This is slightly more than the Saudi bearing of Arab Light, but also less than Basrah Medium – while other grades like Iranian Heavy or Soroosh have been increased by 30 cents per barrel. Indeed, Iranian barrels are not sold on an OSP basis but traded on a spot basis, which makes NIOC still a somewhat academic exercise.
The chances of seeing a JCPOA breakthrough are diminishing day by day as the EU and US consider imposing new sanctions on Iran for its supply of military drones to Russia. In addition, the wave of civil unrest that swept Iran recently following the death of Mahsa Amini, disrupting the operations of Abadan and Assaluyeh refineries among others, risks creating a new rift between the two sides. There has been no apparent disruption to loading operations at Iranian ports, with exports still hovering around the 800-900,000 bpd mark.
Figure 7. Official KEB selling prices for Asian shipments, compared to regional peers (vs. Oman/Dubai average).
Source: CPK.
The Middle East has never been short of wars and conflicts, but Kuwait’s woes throughout 2022 paint a unique picture, a country where democracy has permeated decision-making to the point that parliament can block the work of government. The swearing in of a new government in mid-October could end a political deadlock that has blocked Kuwait for four months already, but its success is far from guaranteed. Yet it is much more than politics – the country’s main new oil project, the 615,000 bpd Al-Zour refinery, is hopelessly behind schedule, while its two operational refineries have suffered a fire and a power outage this month. With Kuwait extremely dependent on the Asian market for its exports, its pricing decisions have little bearing on what happens in Europe or the Americas, but its November PSOs to Asia have proven to follow. the line set by Saudi Aramco. Kuwait’s export crude to Asia rose 20 cents a barrel at a premium of $4.00 a barrel to the Oman/Dubai average, setting absolute parity with its Saudi counterpart Arab Medium.
By Gerald Jansen for Oilprice.com
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