Saudi Arabia, the world’s leading oil exporter, is considering cutting prices for most crude grades sold to Asia in December, reflecting a downturn in the Middle East benchmark, Dubai. Here are the main points:
Potential Price Cuts: Sources indicate that the official selling price (OSP) for Saudi Arabia’s flagship Arab Light crude could decrease by 30 to 50 cents per barrel in December compared to the previous month. This aligns with a decline in Dubai price spreads noted last month.
Market Signals: A reduction in Saudi oil prices would suggest weak demand in the region, reinforcing the position of the Organization of the Petroleum Exporting Countries (OPEC+)—led by Saudi Arabia and including Russia—to potentially postpone plans for increased production starting in December.
Current Market Conditions: Spot premiums for Middle Eastern crude have fallen as the Asian market remains well supplied, while demand from key consumers like China has been lackluster, despite an uptick in refining margins.
Support for Heavier Grades: Some sources predict smaller price cuts for heavier grades of Saudi crude, such as Arab Medium and Arab Heavy, due to strong margins for high-sulphur fuel oil.
Refining Margins Recovery: Complex refining margins in Singapore have rebounded to over $4 per barrel in the latter half of October, a significant increase from September’s average of $2.12, which was the lowest this year.
OPEC+ Production Decisions: OPEC+ may delay its planned production increase for December by a month or more, citing concerns over soft oil demand and rising supply. A decision could be announced as early as next week.
Impact on Regional Pricing: Saudi crude OSPs are typically released around the fifth of each month and set pricing trends for Iranian, Kuwaiti, and Iraqi oil, impacting approximately 9 million barrels per day bound for Asia.
Pricing Strategy: Saudi Aramco determines its crude prices based on customer recommendations and the changing value of its oil, accounting for yields and product prices over the preceding month. However, Aramco officials do not comment on monthly OSPs as a matter of policy.