Saudi Arabia, the world’s largest crude exporter, may drop prices for crude grades supplied to Asia in June after benchmarks fell from records the previous month as COVID lockdowns curtailed demand in China, the world’s largest petroleum importer, traders said on Friday.

Last month, global markets were jolted by Western sanctions against Russia, the world’s largest combined crude and oil product exporter, which threatened to curtail supplies, sending Middle East spot premiums and term prices to all-time highs.

COVID-19 limits in China, on the other hand, have chilled demand, prompting prices to fall this month. Furthermore, substantial volumes of Russian oil displaced by European sanctions continue to flow to China and India, while Japan and South Korea are releasing strategic oil reserves, alleviating supply concerns.

To reflect these changes, Saudi Aramco is expected to reduce the official selling price (OSP) for flagship Arab Light crude in June by $5-$5.50 per barrel, down from a record premium of $9.35 per barrel above the average of Platts Dubai and Dubai Mercantile Exchange Oman quotes, according to a Reuters survey of seven refining sources.

According to one response, the price decreases are due to bad refining margins in China as a result of COVID lockdowns and a lack of product export restrictions that hinder Chinese refiners from sending out extra fuel.

Another respondent, the only one anticipating modest price cuts of $3-$4 per barrel, stated that strong refining margins will support OSPs.

This week, Asian oil refiners made their biggest profits ever, thanks to increased fuel demand and petroleum shipments to Europe to compensate for Russia’s shortage. more info

Saudi crude supply could rise further as OPEC+ is expected to keep to its current agreement and agree on another moderate output increase for June when it meets on May 5, according to six sources within the producer group on Thursday. more info Saudi oil OSPs are typically announced around the fifth of each month, setting the pattern for Iranian, Kuwaiti, and Iraqi prices, affecting around 9 million barrels per day (bpd) of crude heading for Asia.

Saudi Aramco determines crude pricing based on client suggestions and after evaluating the change in the value of its oil over the previous month based on yields and product prices.

Saudi Aramco officials do not comment on the kingdom’s monthly OSPs as a matter of policy.

(Adapted from BusinessWorld.in)

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