Saudi Arabia, the world’s leading oil exporter, is considering a second consecutive month of price cuts for its crude grades sold to Asia in August, reflecting the softness in the Middle East benchmark Dubai, according to trade sources on Friday.
The potential reduction in prices for Asia, which constitutes approximately 80% of Saudi Arabia’s oil exports, highlights the challenges facing OPEC producers amidst increasing supply from non-OPEC countries and global economic uncertainties.
Sources familiar with the matter indicated that the official selling price (OSP) for Saudi Arabia’s flagship Arab Light crude destined for Asia could decrease by 60 to 80 cents per barrel from July levels, potentially reaching the lowest since April. Refiners in Asia expect deeper cuts for heavier grades like Arab Medium and Arab Heavy, driven by improved supply dynamics from Mexico and Canada.
Higher prices for Saudi oil have prompted Chinese refiners to curtail imports from Saudi Arabia for the third consecutive month in July. The anticipated price adjustments for August are anticipated to mirror a narrowing in Dubai’s backwardation by 85 cents this month compared to May, indicating easing supply constraints. Backwardation signifies higher prices for prompt deliveries relative to future months.
Despite support from OPEC+ production cuts and peak summer demand in the northern hemisphere, leading to a forecasted supply deficit this quarter, analysts anticipate increased supply from non-OPEC producers in the Americas.
In Singapore, a key hub for Asian refiners, the average margin at complex refineries stabilised at USD 3.62 per barrel over the past 15 days after declining for two consecutive months, as per LSEG data. Saudi Aramco typically releases its OSPs around the fifth of each month, influencing pricing trends for Iranian, Kuwaiti, and Iraqi crude, which collectively amount to approximately 9 million barrels per day (bpd) destined for Asia.
Saudi Aramco determines its crude prices based on customer feedback and calculations of its oil’s value over the previous month, factoring in yields and product prices.