On Friday, oil traders opined, Saudi Arabia is likely to cut crude oil prices to Asia in June following a slump in demand from China, which is seeing increasing COVID lockdowns which are curbing demand.
China is the world’s biggest crude importer.
Last month, global markets were rattled by Western sanctions on Russia, which happens to be the world’s biggest combined crude and oil products exporter; as a result, spot premiums and term prices in the Middle East jumped to record highs.
COVID-19 restrictions across China have cooled demand for oil, which has resulted in lower prices this month, even as Japan and South Korea continue to release oil from their strategic oil reserves, easing supply concerns.
To reflect changes in the volatile market, state oil company Saudi Aramco is expected to cut the official selling price (OSP) for flagship Arab Light crude in June by $5-$5.50 a barrel from a record premium of $9.35 a barrel above the average of Platts Dubai and Dubai Mercantile Exchange Oman quotes.
“The price cuts are because of weak refining margins in China from the COVID lockdowns and a lack of product export quotas that prevent Chinese refiners from shipping out excess fuel,” said a source on the condition of anonymity.
According to another source who expects a smaller price reductions at $3-$4 a barrel, strong refining margins will support OSPs.
Asian oil refiners are reaping their highest profits ever this week, spurred by higher fuel demand and fuel exports to Europe to replace the Russian shortfall.
“Saudi crude supplies could rise further as OPEC+ is likely to stick to its existing deal and agree another small output increase for June when it meets on May 5,” said six sources
Saudi crude OSPs are typically released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day (bpd) of crude bound for Asia.
Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.
As a matter of policy, Saudi Aramco officials do not comment on the kingdom’s monthly OSPs.
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