Saudi Arabia, the top oil exporter, is considering further reducing the official selling prices (OSPs) for all crude grades to Asia in July, according to a recent poll.
This move comes despite the upcoming OPEC+ meeting, where output reduction discussions are expected to occur.
According to the survey, state oil giant Saudi Aramco may cut the price of its flagship Arab Light crude by approximately $1 per barrel in July.
This would result in the lowest Arab Light price since November 2021, at around $1.55 per barrel over the Oman/Dubai average.
Asian refineries face challenges with weak refining margins, leading to pressure to reduce operational rates.
Although refining profits at a typical Singapore refinery processing Dubai crude increased to an average of $4.27 per barrel in May, they are still significantly lower than the $10.42 per barrel seen in January.
The May trading cycle witnessed softening spot premiums for Middle Eastern benchmark crude grades as refiners slowed down purchases due to bearish expectations on demand and margins.
Some Asian refineries, including Formosa’s Mailiao plant and Thailand’s Bangchak, are reducing run rates. Japan’s Cosmo Oil and Eneos are grappling with unit outages that could take months to resume production.
The upcoming OPEC+ meeting, scheduled for June 3-4, will address production targets. However, respondents in the Reuters survey do not anticipate further production cuts from OPEC+, despite a warning from Saudi Arabia’s energy minister against short-sellers.
In June, some Asian refiners required fewer supplies from Saudi Aramco due to high OSPs. The survey respondents also predicted that Arab Extra Light would remain cheaper than Arab Light, in line with the weak prices of light sour Murban.
Saudi Aramco’s crude prices, which influence Iranian, Kuwaiti, and Iraqi prices, are typically released around the fifth of each month. These prices are determined based on customer recommendations and the calculated change in the value of Saudi oil over the past month, considering yields and product prices. Saudi Aramco officials adhere to a policy of not commenting on the kingdom’s monthly OSPs.