Saudi Aramco is heading to reduce the official selling prices for Arab crude destined for Asia, during next June, in light of fears of a global economic recession that may affect demand.
A survey revealed that the Saudi oil giant, the largest oil exporter in the world, may reduce the price of its main Arab Light crude oil to Asia in June, despite the additional production cuts from OPEC +; Refineries, which have been affected by falling fuel prices, are considering reducing production, as China and India increase their appetite for cheap Russian oil.
Saudi Aramco plans to cut the OSP for its medium sulfur crude by about 40 cents a barrel in June, according to five respondents polled by Reuters.
And in the event that Aramco agrees to reduce the price of a barrel of Saudi oil, it will be the first time after 3 consecutive increases in the prices of Arab crude, which began last March, this April and May, after its decline to its lowest level in 15 months during last February.
Oil prices
Middle East crude prices jumped in the first half of April after the Organization of the Petroleum Exporting Countries (OPEC) and its allies from abroad, led by Russia in the alliance known as OPEC +, announced a voluntary cut starting next May; This raised fears of a scarce supply of high-sulfur crude in Asia.
And 9 OPEC + countries, led by Saudi Arabia and Russia, announced voluntary cuts of more than 1.6 million barrels per day, starting next May, as a precautionary measure aimed at supporting the stability of oil markets.
The voluntary cut is in addition to the two-million-barrel production cut agreed upon by the OPEC+ countries at the 33rd Ministerial Meeting held on October 5, 2022, which will last until the end of December 2023.
However, crude oil prices have reversed in the past two weeks with a decline in product prices, according to data monitored by the specialized energy platform.
Saudi Aramco had raised the selling prices of Arab Light Crude shipments to Asia by 30 US cents to $2.80 per barrel, above the average prices of the Sultanate of Oman/Dubai during next May (2023).
Oil refining in Asia
The refining margin of a typical Asian refiner, which processes Middle East crude, hit a 6-month low of $2.35 a barrel last Friday. Diesel margins are down 27% this month, while gasoline margins are down 49%.
The market also expected that China would soon release a new batch of refined product quotas; Which adds more supplies to an already saturated market.
As a result, the flow of spot Middle East crude trade deals into Asia has slowed, and some refiners are considering operating cuts even as many in the region have already scheduled maintenance for June and August.
“If oil prices continue to rise, refiners will have to reduce operations, or reduce purchases and operate with low stocks of raw materials before they can be fixed,” said one of the respondents to the survey.
At the same time, discounted Russian oil was bought by refiners in China and India, the world’s 1st and 3rd largest oil importers; This led to the displacement of the demand for Middle Eastern raw materials.
Aramco prices for Saudi crude are usually released on the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices. This affects about 9 million barrels per day of crude destined for Asia.
Saudi Aramco sets its crude prices based on customer recommendations and after calculating the change in the value of its oil over the past month, based on revenue and product prices.
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