June 28 2024: Top oil exporter Saudi Arabia is expected to reduce crude prices for Asian buyers for the second consecutive month in August, reflecting the ongoing weakness in the Middle East benchmark Dubai, trade sources reported on Friday.
The potential price reduction highlights the challenges OPEC producers face as non-OPEC supply continues to increase amid global economic headwinds. Asia, which constitutes about 80% of Saudi Arabia’s oil exports, remains a critical market.
Price Adjustments and Market Dynamics
The official selling price (OSP) for Saudi Arabia’s flagship Arab Light crude sold to Asia in August is anticipated to decrease by 60 to 80 cents per barrel from July levels, possibly reaching the lowest price since April, according to four sources at Asian refineries surveyed by Reuters.
Respondents predict slightly more significant price cuts for heavier grades—Arab Medium and Arab Heavy—due to increased supply from Mexico and Canada.
Higher comparative prices for Saudi oil have led Chinese refiners to reduce imports from Saudi Arabia for the third consecutive month in July.
The expected price cuts for August correlate with an 85-cent narrowing in backwardation for Dubai’s monthly price spreads from May, indicating easing tight supply. Backwardation refers to higher prompt prices compared to future months.
Global Supply and Demand Influences
Global crude futures have been bolstered by OPEC+ production cuts and peak summer demand in the northern hemisphere, which is projected to result in a supply deficit this quarter. However, analysts anticipate increased supply from non-OPEC producers in the Americas【O/R】.
The average margin at a complex refinery in Singapore, a benchmark for Asian refiners, stabilized at $3.62 per barrel over the past 15 days after declining for two consecutive months, according to LSEG data.
Saudi Arabia’s crude OSPs, typically announced around the fifth of each month, set the pricing trend for Iranian, Kuwaiti, and Iraqi oil, affecting approximately 9 million barrels per day (bpd) of crude bound for Asia.
State oil giant Saudi Aramco (TADAWUL:2222) sets its crude prices based on customer recommendations and the calculated changes in the value of its oil over the past month, considering yields and product prices. Saudi Aramco officials do not comment on the kingdom’s monthly OSPs as a matter of policy.
Expected Saudi Prices for August
Below are the expected Saudi prices for August (in $/bbl against the Oman/Dubai average):
| Crude Grade | July OSP | Estimated Change | August OSP |
|---|---|---|---|
| Arab Extra Light | +2.20 | -0.65 | +1.55 |
| Arab Light | +2.40 | -0.80/-0.60 | +1.60/+1.80 |
| Arab Medium | +1.95 | -0.80/-0.70 | +1.15/+1.25 |
| Arab Heavy | +1.20 | -0.80/-0.65 | +0.40/+0.55 |
Source: Reuters, trade
