A Reuters survey showed that as part of the Opec+ (Oil Producing Countries Alliance) agreement, the world's largest oil producer, Saudi Arabia, committed to further cut production in July. However, Asian refineries expect the country to lower the prices of crude oil sold to Asia in August.
To support the weakening crude oil prices caused by significant interest rate hikes in Western countries and a global economic slowdown, Saudi Arabia unexpectedly raised the price of crude oil shipments for July in June and promised to voluntarily cut production by 1 million barrels per day in July.
A Reuters survey of six refineries showed that Asian refiners expect Saudi Aramco to reduce the official selling price (OSP) of Arabian Light crude oil in August by 50 cents per barrel from the previous month. One respondent mentioned that Opec+'s oil demand forecast significantly deviates from actual demand, necessitating an adjustment in crude oil prices by Opec+, led by Saudi Arabia, to reflect the changes in real demand.
In June, the official selling price of Arabian Light crude oil, based on the average price of Dubai and Oman, reached a new six-month high of 3 dollars per barrel. However, the profit of Singapore refineries, which mainly import Dubai crude, dropped from 4.78 dollars per barrel last month to 3.44 dollars per barrel.
Additionally, respondents mentioned that due to some refineries undergoing maintenance shutdowns, there might be a slight decrease in the demand for crude oil shipments bound for Asia in August, set to be shipped in September.
There is a strong correlation between Saudi crude oil prices and Dubai crude prices, but the variations in the prices of these two major types of crude have diverged in recent months. Unipec, a subsidiary of Sinopec, which is the largest refinery in Asia and one of the biggest buyers of Saudi crude oil, sold large quantities of Middle Eastern crude last month through Platts (the platform for setting Dubai crude benchmark prices by S&P Global). Although the demand from CNPC and Total's trading branch, Totsa, was strong, the data showed weakening sales from Unipec in the past two months.
Saudi Arabia's unexpected production cut in July, along with the increase in crude oil export prices before the summer peak oil consumption season, have forced Chinese and other Asian refineries to reduce or plan to reduce their crude oil demand, as developed countries continue to hike interest rates and China's economic growth is far weaker than market expectations.
Saudi Arabia usually announces its crude oil export prices around the 5th of each month. These prices significantly impact the crude oil prices of Iran, Kuwait, and Iraq, consequently affecting the price of about 9 million barrels of crude oil supplied to Asia daily.
