The failure of the OPEC + talks and the subsequent (albeit gradual) rapprochement of the parties coincided with the fact that the NOCs in the Middle East set their official August 2021 sales prices. The connection between the OPEC talks + and the expectations of Saudi Arabia was visible in the fact that Saudi Aramco did not issue its official prices until the last point, publishing them only when the Vienna meeting was definitively and certifiably canceled. monthly walks only underscore intention; By raising August prices on all continents, in most cases beyond general market anticipations, Aramco delivered a fairly straightforward message that it does not want OPEC + collective action to stop and that it will not increase. production beyond its quota. Other national oil companies followed suit, to varying degrees, and now, with the OPEC + deal alive and well again, it all made perfect sense to do so.
Although overall refining margins appear much healthier in Europe and North America, it was Asian OSPs that generated the most interest, the main exit market for Saudi barrels. The month-on-month backwardation of Dubai M1-M3 futures widened last month by about 60 cents a barrel, so the general expectation was that August price increases would be more or less in line. Saudi Aramco, however, rose Arab Super Light by $ 1 per barrel (at a premium of $ 3.85 to the Oman / Dubai average) and all other grades by $ 0.8 per barrel month-over-month. What was strange about such a widespread move was the lack of differentiation between lighter and heavier grades, one of the main 2021 trends overall after the flattening of spreads in the wake of the 2020 price drop.
Graph 1. Saudi Aramco official sales prices for Asia in 2017-2021 (USD per barrel).
Source: Saudi Aramco.
Saudi Aramco also did the same in Europe. Formula prices for Northwest Europe increased $ 0.8 per barrel month-over-month across all grades, while US-bound prices increased by 20 cents a barrel since July, with the exception of Arab Extra Light, which went up by 40 cents a barrel mom. The problem is that the economic normalization that has been happening in Western economies affected the lighter ends differently than the heavier yields – that is, naphtha-rich grades became the most in-demand segment of the crude spectrum. Unencumbered, August’s price hike has pushed Asian Arab Heavy prices to a 9-year high with a premium of $ 1.20 per barrel to the Oman / Dubai average, despite prolonged weakness. in Asia Pacific.
Graph 2. ADNOC official sales prices in 2017-2021 (USD per barrel).
The United Arab Emirates benchmark, Murban, has followed a different path, even though the overall result was not much different from its direct Arab Extra Light counterpart. IFAD’s price for Murban’s August 2021 prices was set at $ 72.34 per barrel, about $ 1.28 per barrel above Dubai’s monthly cash average. While the exchange naturally calculates Murban’s average OSP, the other grades are manually adjusted by ADNOC to reflect current market conditions. Here ADNOC was more in line with the general trend, going above Das, rising Umm Lulu by 5 cents to parity with Murban, while Upper Zakum fell by 10 cents from July to a spread of – $ 0.6 per barrel to Murban. , the lowest since the start of the pandemic. Upper Zakum, which is the heaviest of the main ADNOC streams at 34 ° API, certainly faces a much more difficult task of finding market outlets than the sweet and light Murban.
Graph 3. Iraqi official sales prices for Asia in 2018-2021 (USD per barrel).
Once Saudi Aramco set the general course for Middle East prices in August, Iraqi SOMO had little incentive to deviate from the plotted course, but still tried to add a layer of nuance. The Iraqi state oil trader raised prices in Asia by 80 cents a barrel month-over-month for Basrah Light and Basrah Medium, while increasing Basrah Heavy by 75 cents a barrel at a discount of – $ 0.65 a barrel with relative to the Oman / Dubai average. , that is, soften the blow in the heaviest currents. SOMO’s European prices were even more buyer-friendly as they saw an increase of 55 to 65 cents a barrel for their flagship grades and rolled over Kirkuk prices from July. Once again, the notion that performance-rich grades should see less of a month-over-month increase than naphtha-rich grades found its reflection in the August 2021 OSPs.
Graph 4. KPC official sales prices for Asia in 2017-2021 (USD per barrel).
Kuwait mirrored Saudi Aramco’s price and increased its KEB August OSP by 80 cents per barrel at a premium of 2.05 per barrel over the Oman / Dubai average, maintaining the 10-cent per barrel discount for Arab Medium and the discount of 20 cents a barrel for Basrah Light. Although Kuwait saw a production baseline increase from 2.81 mbd to 2.96 mbd, its immediate export capacity could be constrained by peak energy demand. Generally dependent on associated gas for its power generation, quota-restricted oil production has caused a decline in gas available for power generation just as Kuwait has been struggling to cope with one of its warmest summers on record. As a result, oil burns began to rise in Kuwait again (approaching 0.2mbpd) after the country hit several historic peaks in energy demand over the course of this month. Hypothetically, LNG imports could save the day for Kuwait (and it did indeed start importing LNG), yet exorbitantly high prices for liquefied gas limit the Middle Eastern nation’s space to do so.
Graph 5. NIOC official sales prices for Asia in 2018-2021 (USD per barrel).
According to the shipping data, Iranian exports have regressed since May 2021, which roughly corresponds to the start of nuclear negotiations. In March-April this year, NIOC was exporting between 700 and 750 kbpd of crude, most of it to the Singapore-Malaysia-China triangle, where anything could be mixed and re-labeled. In May-June, however, this was reduced to just 500 kbpd, and while the possibility of some barrels resurfacing later and avoiding liability remains fully valid, the overall trend is toward stagnation rather than an impending boom. of Iranian oil exports. The rise of Ebrahim Raisi to the post of President of Iran will further complicate matters, as the likelihood of the JCPOA resurrecting after his inauguration on August 8 is quite slim, meaning the negotiators have a little over 2 weeks. to find a mutually acceptable agreement. solution.
Graph 6. Middle East Acid Grades in 2018-2021 (USD per barrel).
Source: Saudi Aramco, NIOC, SOMO.
Interestingly, Iranian national oil company NIOC copied Saudi Aramco’s 80 cent per barrel month-over-month increase for its flagship Iranian light and heavy transmissions heading to Asia in August, staying at the 30-cent-per-barrel discount on the Iran Light. -Arab Light. spread. While reiterating its willingness to remain competitive vis-à-vis its Saudi or Iraqi peers, Iran’s current market strategy feels somewhat different than before 2015: Having become self-sufficient in transportation fuels, it has become much more self-centered. and it lacks the massive crude hoarding that dominated pre-2015 reality. According to Kpler data, crude inventories in Iran have been declining since late May, so there is not even a build-up of stocks taking place, in anticipation of great things to come. So in the end, despite all the turmoil it has witnessed this month, everything has returned to its “right” place: OPEC + is controlling crude supplies again, Saudi Arabia maintains discipline within the group, and Iran remains a invariable wildcard.
By Gerald Jansen for Oil Genealogie
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