Saudi Arabia may cut October crude prices for Asia

September 2, 2021: Top oil exporter Saudi Arabia is expected to cut prices for most crude grades it sells to Asia in October after Middle East benchmark Dubai weakened last month, a poll of six refiners showed.

The official selling price (OSP) for flagship Arab Light crude is expected to fall by 20-40 cents a barrel in October, tracking a 17-cent drop in Dubai's market structure, four of the respondents said. The remaining two expect prices to drop more than $1 a barrel.

That would mark the first Saudi price reduction in five months and comes after the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, agreed in July to ease supply cuts by 400,000 barrels per day (bpd) every month between August and December.

OPEC+ agreed on Wednesday to stick to this agreement which will see the group releasing 400,000 bpd to the market in October, after releasing the same amount in September. The group will meet again on Oct. 4.

Tight supplies have been supporting Saudi prices with Arab Heavy crude's OSP hitting its highest level since 2012 while other grades are at their loftiest since early 2020.

Saudi crude prices are "too far from where (the) spot market is", one respondent said, referring to last month's trade.

Spot premiums for October-loading Middle East light sour crude fell about 50 cents a barrel from the previous month while Banoco Arab Medium, similar to Saudi oil, was valued at discount to its OSP, traders said. Higher Iraqi supplies have also depressed September-loading Basra Heavy crude into deep discount of $2 a barrel to its OSP, they added.

"Prices definitely have to correct down," a second trader said, although the extent of cuts will depend on how much Saudi Aramco takes into account of what took place in the spot market.

Respondents were split about the price outlook for heavier Saudi crude as similar supplies traded lower but these grades also yield more fuel oil, for which margins and demand have risen.

Two respondents expected prices for Arab Medium and Arab Heavy to stay flat or rise by up to 40 cents, while three others called on Saudi to cut prices by 70 cents to $1.50. The sixth said it was hard to provide estimates.Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 9 million barrels per day (bpd) of crude bound for Asia.

State oil giant 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.

Reuters