Saudis Increase January OSP’s

Energy

After a weak close on Friday, oil markets have opened stronger this morning. Brent is trading comfortably back above US$70/bbl, after the Saudis raised their official selling prices (OSP) for all grades of their crude oil into Asia for January. Aramco’s flagship Arab Light into Asia was increased by US$0.60/bbl MoM to US$3.30/bbl over the benchmark. All grades to the US were also increased, while all grades into Europe saw a cut in their OSP's for January. The increase in OSP's into Asia comes despite OPEC+ agreeing to stick to its plan of increasing output by 400Mbbls/d in January, and despite uncertainty over the Omicron variant and the expectation that the market will be better supplied in 1Q22. What makes the move even more strange is that the increase has come at a time when the Brent/Dubai spread has been narrowing. A weaker Brent/Dubai spread along with stronger Saudi OSP's will make Atlantic Basin crude into Asia more competitive, possibly weighing on demand for Saudi crude. However, the move suggests that the Saudis have confidence in the demand outlook, and the market appears to be taking comfort in that.

Photo by Martin Adams on Unsplash 

The latest positioning data shows that speculators cut their net long in ICE Brent by 44,654 lots over the last reporting week to leave them with a net long of 167,166 lots. This is the smallest position they have held since November last year. The move was driven exclusively by longs liquidating. NYMEX WTI also saw significant liquidations over the week. The speculative net long in WTI was cut by 45,171 lots, leaving a net long of 257,631 lots. This is the smallest position speculators have held in WTI since April last year. The flushing out of longs leaves the door open for speculators to come back into the market at these lower levels. 

Metals

Omicron uncertainty continues to whipsaw the metals complex. Speculation about China policy easing has sparked optimism within the ferrous sector, resulting in Shanghai steel and iron ore extending their gains last week. But LME aluminium finished the week lower, as exchange inventories continued to fall. The latest LME data shows that inventories have now declined for 55 consecutive days, reaching a fresh 14-year low of 883kt as of last Friday.

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