SINGAPORE: Saudi Arabia, the world’s biggest oil exporter, may raise its price for Arab Light crude for sale to Asian refiners for a third month as its voluntary output cuts may be extended, further tightening the supply of high-sulphur, or sour, crude.
State-owned Saudi Aramco may raise the official selling price (OSP) for its flagship Arab Light crude in September by about 45 cents from August to $3.65 a barrel above Oman/Dubai quotes, which would be the grade’s highest premium this year, a Reuters survey of five refining sources showed.
Saudi Arabia has said it will cut its production by 1 million barrels per day (bpd) in July and August on top of broad reductions by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to limit oil supply into 2024 to support prices.
Market participants and analysts forecast Saudi Arabia will extend the voluntary cut for another month to include September when OPEC+ holds its monthly Joint Ministerial Monitoring Committee meeting on Aug. 4.
“It’s always hard to make prediction on Saudi’s OSPs. But the rollover of the 1 million bpd cut is seen as a baseline in September price assessments,” said one respondent.
The supply reductions have boosted oil prices, particularly for sour crude, since the end of June.
The supply tightness is reflected in the widening of the backwardation during July in the first- and third-month price spread for Middle East benchmark crude Dubai, an indicator that typically guides how much Saudi Aramco might raise or cut Arab Light’s OSP.
Backwardation is the pricing structure where prices for prompt supply are higher than those in future months, suggesting less supply and higher demand for oil.
The backwardation in the spread widened by 43 cents a barrel in July, indicating the OSP will rise by a similar amount.
Arab Light prices are also supported by improving refining margins in Asia, in particular for middle distillates.
Profits at a typical Singapore refinery processing Dubai crude averaged $10.60 a barrel in July, the highest in seven months.
Most of the survey respondents expected Saudi Arabia to raise prices for heavier grades Arab Medium and Arab Heavy by more than Arab Extra Light as the light crude is oversupplied.
The Arab Extra Light OSP typically tracks premiums of Murban, a light sour crude from the United Arab Emirates. In July, Murban prices were pressured by arbitrage crude from the Americas and West Africa as the spread between benchmarks Brent and Dubai narrowed.
Saudi Aramco’s OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million bpd of crude bound for Asia.
Saudi Aramco officials as a matter of policy do not comment on the its monthly OSPs.