Saudi Arabia, the world’s largest oil exporter, may be poised to cut prices for most of the crude grades it sells to Asia in July, the first such reduction in five months. This potential price cut comes as Middle East benchmarks and margins for Asian refiners have weakened, according to refining sources.
The July official selling price (OSP) for Saudi’s flagship Arab Light crude is expected to fall by 30 to 50 cents per barrel, a Reuters survey of five refiners showed. This would follow a five-month high in June.
The potential price reduction for Asia, which accounts for 82% of Saudi’s oil exports, underscores the pressure faced by OPEC producers as non-OPEC supply continues to grow while the global economy faces headwinds.
The Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, are likely to extend voluntary supply cuts at their upcoming June 2 meeting.
State oil giant Saudi Aramco is likely to reduce its OSPs after the first and third-month price spread for the Middle East benchmark Dubai narrowed in backwardation by about 40 cents this month, said the sources, who spoke on the condition of anonymity.
Backwardation is a market structure where prompt prices are higher than those in future months, indicating tight supply. However, this tightness has eased after state energy firms Pemex and ADNOC reduced domestic intake of their own oil, the sources said. Additionally, Canada has started exporting heavy oil from its newly expanded Trans Mountain pipeline to Asia.
With supply tightness easing and weak refining margins in Asia curbing refiners’ appetite for incremental supply, one of the sources said the OSPs for Arab Medium and Arab Heavy should be reduced further.
Saudi crude OSPs are usually released around the fifth of each month and set the trend for Iranian, Kuwaiti, and Iraqi prices, affecting more than 9 million barrels per day of crude bound for Asia.