According to sources familiar with refiners’ allocations from the biggest crude oil supplier in the world, Saudi Arabia would provide the full contractual amounts to at least three customers in North Asia, Reuters reported on Monday.
Due to weak gasoline demand and rising competition from crude from other locations, Saudi Arabia’s oil company Aramco cut the price of its flagship grade to Asia last week, as was generally anticipated. It had been four months since Saudi Arabia’s official selling prices (OSPs) to its main export market, Asia, had been reduced.
With the exception of heavier and lighter versions, which will see a $0.50 per barrel increase, Aramco reduced the price of its Arab Light crude grade to Asia by $3.95 per barrel for October and to European clients by $2 per barrel.
The price reductions follow record-breaking highs for Arab Light in September, when it reached $9.80 per barrel over the Oman/Dubai benchmark, and for Arab Extra Light this month, which is selling for $10.95 per barrel over the Middle Eastern benchmarks. Asian consumers would pay $5.85 more per barrel for Arab Light in October thanks to the price reductions than the Oman/Dubai benchmark.
Shortly after Russia declared it will increase oil supplies to Asia in response to the G7’s decision to enforce a price cap on Russian oil starting on December 5th, when the European Union embargo on Russian seaborne oil takes effect, the Saudi Arabian price reduction for October also came into effect.
Asian refiners anticipated a significant decrease in Saudi prices, largely because of two factors. With worries about an economic slowdown and flash Covid lockdowns in China as part of the “zero Covid” programme, the first one is the worry that demand won’t be robust. Another factor affecting demand for cargoes connected to the Dubai benchmark, upon which Middle Eastern crudes are priced for loadings to Asia, is the closing differential between Dubai-linked and Brent-linked cargoes.