Saudi Arabia, the world’s leading oil exporter, might lower the prices for its crude sold to Asia for the second consecutive month in August. This potential price cut follows a weakening of the Middle East benchmark, Dubai, according to trade sources cited by Reuters on Friday.
The possible price reduction for Asia, which buys about 80% of Saudi’s oil exports, highlights the challenges OPEC producers face as non-OPEC supply grows and the global economy struggles.
The official selling price (OSP) for Saudi’s main Arab Light crude sold to Asia in August could drop by 60 to 80 cents per barrel from July, reaching its lowest level since April. This information comes from four sources at Asian refineries surveyed by Reuters.
These sources also expect slightly larger price cuts for heavier crude grades like Arab Medium and Arab Heavy due to increased supply from Mexico and Canada.
Higher prices for Saudi oil have already led Chinese refiners to cut imports from Saudi Arabia for the third straight month in July.
The anticipated price cuts for August are expected to reflect a narrowing in backwardation for Dubai’s monthly price spreads by 85 cents from May.
Backwardation occurs when current prices are higher than future prices, indicating an easing of tight supply.
Global crude futures have been supported by OPEC+ production cuts and peak summer demand in the northern hemisphere, which are expected to create a supply deficit this quarter.
However, analysts predict more supply from non-OPEC producers in the Americas.
Saudi crude OSPs are usually released around the fifth of each month and influence the prices for Iranian, Kuwaiti, and Iraqi crude, affecting about 9 million barrels per day of oil headed for Asia.
Saudi Aramco, the state oil giant, sets its crude prices based on customer recommendations and changes in the value of its oil over the past month, considering yields and product prices. As a matter of policy, Saudi Aramco officials do not comment on the kingdom’s monthly OSPs.
