Top oil exporter Saudi Arabia may cut the price for its flagship Arab Light crude to Asia in June despite an extra output cut from OPEC+, as refiners hit by sliding fuel prices consider reducing output and China and India snap up cheap Russian crude.
State oil giant Saudi Aramco (2222.SE) may reduce the official selling price (OSP) for its medium sour crude by about 40 cents a barrel in June, according to five respondents surveyed by Reuters, following three months of price hikes.
Middle Eastern crude prices jumped in the first half of April after the Organization of the Petroleum Exporting Countries and its allies (OPEC+), including Russia, announced a surprise cut of 1.16 million barrels per day from May, raising concerns of tight supply of sour crude in Asia.
However crude prices reversed in the past two weeks as product prices plummeted.
The refining margin for a typical Asian refiner, which processes Middle Eastern crude, hit a six-month low of $2.35 a barrel last Friday. Diesel margins have fallen 27% this month, while gasoline margins have slumped 49%.
The market also expected China will soon issue new batch of refined product quotas, adding more supply to the already saturated market.
As a result, the flow of Asia's spot Middle East crude oil trade deals slowed and some refiners are pondering run cuts even as many in the region already made schedule for maintenance in June-August.
"If oil prices continue going up, the refineries will have to cut operations, or reduce purchases and run at low feedstock inventory before their overhauls come up," said one of the respondents.
At the same time, discounted Russian crude has been snapped up by refiners in China and India, the world's no.1 and no.3 oil importers, displacing demand for Middle Eastern crudes.
Saudi crude OSPs are usually 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.
Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.
Below are expected Saudi prices for June 2023 (in $/bbl against the Oman/Dubai average):
