Top oil exporter Saudi Arabia is expected to cut prices for all grades of crude it sells to Asia in January amid a weaker Middle East benchmark Dubai and low margins for light products, industry sources said on Monday.
Saudi Aramco will set prices for crude loading in January this week, ahead of a meeting among the Organization of the Petroleum Exporting Countries and Russia to decide on output cuts.
The official selling price (OSP) for Arab Light may fall between 50 cents and $1.20 a barrel to the lowest in at least three months, a Reuters survey of six refiners showed.
The price cut should track a 77-cent drop in Platts Dubai’s price spread between the first and third month in November from October, they said.
“Refining margins are also down at least 10 percent overall and a strong fuel oil crack is useless to most refineries,” one of the survey respondents said.
While several factors point to deep price reductions for Saudi oil in Asia, the OPEC kingpin may not cut as much because outright prices have fallen sharply.
“The OSP should be lowered to compensate for a weaker intermonth structure, but since the flat price has fallen below $60 I wonder if Aramco will cut prices less,” said a second respondent who expected a 50-cent cut in Arab Light’s January OSP.
Most of those polled expect Arab Extra Light’s January OSP to fall by more than $1 a barrel in response to naphtha cracks which have dropped to the lowest in more than two years.
Still, fuel oil margins have hit all-time highs, supporting prices for all Middle East grades which yield a large portion of the residue. Hence, Arab Medium and Arab Heavy OSPs will see smaller price cuts, the respondents said, with one forecasting that Arab Heavy will remain unchanged in January.
“The fuel oil crack is quite strong while naphtha and gasoline cracks are really weak so we expect a heavy discount on Arab Extra Light. There might even be a price hike for Arab Medium and Arab Heavy,” said a third respondent.
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 12 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.