The Kingdom of Saudi Arabia is expected to cut its official selling price for its crude oil to Asian buyers amid heightened competition from non-Middle Eastern oil.
A survey among analysts conducted by Bloomberg, including a total of six refiners and traders, revealed that the move would be prompted by intensified competition for the Asian market and cheaper crude from the United States and Europe, as well as Guyana.
The influx of non-Middle Eastern oil comes as Brent crude, the global benchmark, is at near parity with the Dubai benchmark, according to PVM Oil Associates. OilPrice.com revealed that the development, which is unusual, is the result of OPEC production cuts—notably Saudi Arabia’s voluntary cut—that have pushed Middle Eastern oil prices higher, and closer to Brent.
As a result, Bloomberg reports, non-Middle Eastern oil has become more attractive for bargain hunters in Asia, doubling as evidence of the unintended effects of the production cuts, such as increased demand for less expensive oil.
According to the Bloomberg survey, the average price cut forecast is for $1.05 per barrel of Arab Light, for deliveries in February next year. However, the individual forecasts ranged between $0.75 per barrel and $2 per barrel.
In the past few months, Saudi Arabia has been raising its prices for Asian buyers. In fact, it raised them for five months in a row until November, before announcing it would keep prices for Arab Light unchanged for December deliveries, earlier this month. It did, however, raise the price for Arab Extra Light by $0.70 per barrel.
This suggests healthy enough demand for Saudi barrels in Asia despite competition from the U.S. Guyana and the North Sea. Supply, on the other hand, is likely to remain tight for the foreseeable future.
The overwhelming expectation of analysts and traders from the OPEC+ meeting set to take place tomorrow is that the Saudis and the Russians will extend their production cuts into 2024. At this point, they probably can’t afford not to.