After three consecutive months of rising crude oil prices, the world’s largest oil exporter, Saudi Arabia, is expected to make the first cut in its official selling prices (OSP) since the OPEC + group began its cuts of unprecedented production to prop up the market and prices amid overwhelming demand. Asia’s oil refiners and traders greatly expect Saudi oil giant Aramco to cut the price of its crude destined for Asia in September, as the faltering recovery in oil demand is depressing refining margins and weakening points reference oil for the Middle East with which the Gulf producers set their prices for Asia.
According to a Reuters poll of five Asian refineries, the industry expects Saudi Arabia to lower the price of its flagship crude, the grade of Arab light crude, to Asia by September at an average of $ 0.61 a barrel.
A survey of Bloomberg He showed similar expectations to eight Asian traders and refiners, with an average forecast of a cut of $ 0.48 per barrel.
This would mean that light Saudi Arabian crude loaded for Asia in September could have a premium of US $ 0.72 per barrel above the Dubai / Oman benchmark, below the premium of US $ 1.20 per barrel for shipments of August, which Saudi Aramco announced in early July on the third rise in its crude prices in three months.
While increases in Saudi prices in the past three months indicated that demand for oil was recovering and that the Dubai / Oman benchmarks in the Middle East were strengthening as supply narrowed following the cuts in OPEC +, expectations that Saudi price cuts will continue is a sign that the recovery in demand is stumbling and dragging down the Middle East benchmarks and refining margins.
The price of Saudi crude oil, which is usually published around the fifth of each month, usually marks the trend in prices for Asia of other Gulf oil producers, such as Kuwait, Iraq and Iran. Saudi Aramco’s price affects up to 12 million barrels per day (bpd) of oil from the Middle East going to Asia.
The price of Saudi crude is also a telltale sign of demand for its crude and of market fundamentals and refining margins in all regions.
The first reduction in Saudi oil prices in four months – if Aramco agrees with the expectations of refiners and traders – will be another sign that recovery in oil demand is slower than expected just a month ago. .
There are already signs that demand is faltering and another excess is imminent. At the end of July, the structure of the Dubai market once again took a turn towards contango, a situation in which the prices of the first month are lower than those of the future months, which points to an excess supply of oil. raw. Over the past week, the Brent crude oil futures curve has also shifted towards contango, as sluggish demand and a return to output from the US and OPEC + weigh on market sentiment.
Refining margins across Asia, especially for jet fuel and gasoline, are weakening due to stagnant demand. Chinese fuel exports are also weighing on regional margins.
Indian refineries, for example, are cutting processing rates because demand for fuel – which has risen from the lows in April and May – has slowed this month as fuel prices are higher and parts Indians are again under local shutdown, while the monsoon rainy season is also paralyzing economic activity and transport, refinery officials told Reuters this week.
Weeks ago it became clear that the recovery in oil demand would not be a V-shaped story, but the recent resurgence of COVID-19 cases in many parts of the world and the real possibility of new closures – albeit localized – has slowed, if not stagnant, fragile recovery.
The faltering demand, the influx of supply as OPEC + eases cuts from August 1, the weak market structure and still weak refining margins may leave Saudi Arabia with no choice but to meet expectations of customers and lower their oil prices for the first time in four months.
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