Saudi Arabia May Reduce Oil Prices for Asia for Second Consecutive Month in August, Reports Reuters

By Florence Tan

SINGAPORE (Reuters) – Saudi Arabia, the leading oil exporter, may lower prices for its crude grades sold to Asia for the second consecutive month in August, reflecting a downturn in the Middle East benchmark Dubai, as indicated by trade sources on Friday.

The expected price decrease is significant for Asia, which purchases approximately 80% of Saudi oil exports, highlighting the difficulties OPEC producers face as non-OPEC supply rises and the global economy encounters challenges.

According to a Reuters survey of four sources at Asian refineries, the official selling price (OSP) for the premier Arab Light crude for August could drop by 60 to 80 cents per barrel from July, potentially reaching its lowest level since April.

The survey respondents anticipate deeper price cuts for heavier grades—Arab Medium and Arab Heavy—compared to Arab Light, driven by increased supply from Mexico and Canada.

Higher prices for Saudi oil have led Chinese refiners to cut their imports from Saudi Arabia for the third consecutive month in July.

The forecasted price reductions for August are likely to align with a tightening in the backwardation of Dubai’s monthly price spreads, which eased by 85 cents this month compared to May, indicating a reduction in tight supply. Backwardation occurs when prompt prices are higher than those for future months.

Global crude futures have benefitted from OPEC+ production cuts and heightened summer demand in the northern hemisphere, contributing to an anticipated supply deficit this quarter, although analysts foresee increasing supply from non-OPEC producers in the Americas.

Data from LSEG revealed that the average margin at a complex refinery in Singapore, a key indicator for Asian refiners, stabilized at $3.62 per barrel over the past 15 days after declining for two consecutive months. Saudi Aramco typically releases its crude OSPs around the fifth of each month, influencing the pricing trends of Iranian, Kuwaiti, and Iraqi oil, which together total around 9 million barrels per day destined for Asia.

Saudi Aramco sets its crude prices based on customer recommendations and a calculation of changes in oil value over the preceding month, accounting for yields and product prices. The company does not publicly comment on its monthly OSPs.

Below are the anticipated Saudi prices for August (in $/bbl against the Oman/Dubai average):

– Arab Extra Light: July +2.20; Change est. -0.65; August OSP +1.55
– Arab Light: July +2.40; Change est. -0.80/-0.60; August OSP +1.60/+1.80
– Arab Medium: July +1.95; Change est. -0.80/-0.70; August OSP +1.15/+1.25
– Arab Heavy: July +1.20; Change est. -0.80/-0.65; August OSP +0.40/+0.55