Singapore/Beijing: Top oil exporter Saudi Arabia is expected to reduce the official selling prices (OSP) for most of the grades it sells to Asia in July due to weaker Dubai prices, a Reuters survey showed on Monday.
Saudi Arabia may drop the OSPs for Arab Extra Light and Arab Light by 15 and 45 cents per barrel respectively, while Arab Medium and Arab Heavy could see cuts of 60 and 50 cents, according to the median of estimates from eight refiners, traders and an analyst.
Ample supply of sour crude has depressed the front-month Dubai price, narrowing the prompt inter-month spread in backwardation. In a backwardated market, prompt prices are higher than future months.
Improved gasoil cracks could limit the downside for light grades, Arab Extra Light and Arab Light, while heavier grades such as Arab Medium and Arab Heavy could fall more on weaker fuel oil cracks.
“The heavies went up too much in the previous few months and demand for Banoco Arab Medium is almost zero,” said a trader with a North Asian firm, adding that the grade’s OSP was too high.
Banoco Arab Medium was traded at a wide discount of more than 40 cents a barrel to its OSP in July.
Fuel oil cracks’ discount to Dubai — or the loss incurred by refiners for every barrel of the residue fuel they produce — widened from minus $4.84 (Dh17.7) at the start of May to hit the lowest in a month on May 21.
Gasoil cracks rebounded from the lowest in more than two years to above $16 a barrel.
Saudi Aramco, the world’s biggest crude exporter, sets its crude prices based on recommendations from customers, and after calculating the change in value of its oil over the previous month, considering yields and product prices.