Saudi Arabia, the world’s top oil exporter, is likely to reduce the prices of crude grades it sells to Asia for a second consecutive month in August. This potential price cut is in response to the weakening of the Middle East benchmark Dubai, according to trade sources.
The reduction in prices for Asia, which accounts for around 80% 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.
According to a Reuters survey of four sources at Asian refineries, the official selling price (OSP) for flagship Arab Light crude sold to Asia in August may fall by 60 to 80 cents per barrel from July, potentially reaching the lowest level since April.
The respondents also expect slightly deeper price cuts for heavier grades, such as Arab Medium and Arab Heavy, compared to Arab Light, due to improving supply from Mexico and Canada.
The potential price cuts for August are expected to track a narrowing in backwardation for Dubai’s monthly price spreads by 85 cents this month from May, indicating that the tight supply situation is easing. Backwardation refers to a market structure where prompt prices are higher than those in future months.
While global crude futures have been supported by OPEC+ production cuts and peak summer demand in the northern hemisphere, analysts expect more supply to come from non-OPEC producers in the Americas, potentially leading to a supply surplus in the coming quarters.
The average margin at a complex refinery in Singapore, a bellwether for Asian refiners, has stabilized at $3.62 per barrel in the past 15 days after falling for two consecutive months, according to LSEG data.
Saudi crude OSPs are usually released around the fifth of each month and set the trend for Iranian, Kuwaiti, and Iraqi prices, affecting about 9 million barrels per day of crude bound for Asia.