Following a year of rising crude demand and tight supply, the crude futures market is now pointing at oversupply, and many Middle East producers will be forced to slash premiums again
Most Middle Eastern exporters have recorded their highest-ever differentials in 2022.Considering that by now the first three months of 2023 are all in contango for Dubai futures, it would be fair to say that steeper cuts in formula prices are unavoidable.The Middle East has been steadily reaping the benefits of its oil bounty throughout 2022, arguably one of the most successful years for the region at large in its recent history. Yet the prospects for next year are by no means as rosy.
understands this and has cut its December formula prices by the same extent that Saudi lowered Arab Medium, a grade which is generally lighter and sweeter than Basrah Medium which often boasts a quality different from its nominal quality specifications. Meanwhile, Iraqi oil exports have been trending down so less Middle Eastern oil on the market might also be a driver in
’s decision making. At the same time, in the specific case of Iraq lower exports might be linked to its new refinery in Karbala starting up commercial operations, a feat it shares with its southern neighbour Kuwait. usually publishes its formula prices a week after Saudi Aramco and the additional waiting time led to the Iraqis hiking their December OSPs into Europe by $0.7-$1.05 per barrel month-on-month. Perhaps involuntarily,
has found itself in a position when its pricing for Europe has a huge competitive edge over Saudi Aramco’s. The thing is that Aramco’s formula prices are based off ICE Brent, whilst the Iraqi state oil marketer has traditionally relied on Dated Brent – and the two have switched places recently with the immediate Brent CFDs firmly in contango territory.
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