Crude spectrum splinters: light and heavy grades tighten, medium crudes face structural headwinds

Market & Trading Calls

• Bullish heavy crude markets in the Americas amid a tightening in balances over the summer months, resulting from declining supplies from Venezuela and Mexico. However, seasonally declining US crude demand and robust Albertan oil sands supply over Q3 is likely to weigh increasingly on WCS Hardisty crude differentials come autumn.
• Neutral to bullish on Mideast medium crude, underpinned by firm summer demand and a largely closed arbitrage window.
• Bullish light sweet WAF differentials with continued demand from West of Suez refining system planned decline in Forties exports due to August Buzzard field maintenance

Trades of the Month

• Aramco August OSPs: Aramco is likely to raise its August-loading Arab Light OSP by around $0.60–$0.70/bbl. OSPs for heavier grades, such as Arab Medium and Arab Heavy, could see more aggressive hikes of $0.70–$0.90/bbl. Arab Light OSPs into Europe and the US are likely to rise by $2.00-2.20/bbl and $0.20/bbl, respectively, reflecting the stronger market structure for medium sours in those regions.
• Long Sep/Oct WTI-Brent box, with further prompt upside for WTI relative to Brent with stronger domestic and Asian demand if Murban volumes drop. Moving through the summer, seasonal factors and maintenance periods should cause WTI-Brent to recalibrate lower, with some US capacity going offline earlier as well.