Saudi Oil Prices To Asia Seen Falling For Second Month Amid Weak Demand

Saudi Arabia is likely to lower its official selling prices (OSP) for crude oil to Asian buyers in July for the second month running, as weak spot market demand and reduced Chinese refinery activity outweigh the supply disruptions caused by tensions in West Asia, according to a Reuters survey of industry sources.

The July official selling price for Arab Light crude — Saudi Arabia's flagship grade — is expected to be set at a premium of $7.50 to $12.50 a barrel above the average of Dubai and Oman quotes, five industry sources told Reuters. That would represent a cut of $3 to $8 a barrel compared with the June price, following an already softening spot market through May.

The cash Dubai price's premium to swaps has averaged $8.90 a barrel so far this month, down sharply from April's average of $13.92, with spot Oman premiums moving in a similar direction. The retreat marks a dramatic reversal from March, when Dubai's premium surged to a record high of over $60 per barrel after the US-Israeli war involving Iran choked off supplies through the Strait of Hormuz.

That spike has since unwound for two major reasons. Chinese refiners cut both their refining runs and crude imports sharply in response to the elevated price environment, removing a significant source of demand from the market. Simultaneously, the US ramped up oil and fuel exports to global markets to help offset Middle East supply shortfalls.

Ceasefire Hopes Weigh on Brent

The prospect of a US-Iran deal to end the war and reopen the Strait of Hormuz has pushed Brent crude futures below $100 a barrel this week, adding further downward pressure on prices. A number of tankers have left the Gulf this month, though energy flows through the waterway remain well below pre-war levels. Saudi Aramco has been routing Arab Light exports through its Red Sea port of Yanbu to work around the shipping restrictions on the strait.

Chinese buyers have been taking less Saudi crude in both May and June, with refiners running at a loss under current price conditions — making a meaningful price cut a prerequisite for restoring demand, according to one of the survey respondents. All other Saudi grades are expected to see price reductions of a similar magnitude. Saudi Aramco, which sets the prices, does not comment on official selling prices as a matter of policy, with July figures typically published around the fifth of the month.