RIYADH: Saudi Arabia has drastically cut its July selling prices for its crude oil shipments to Asia, making it the second monthly cut this year as slowing demand in China trumps worries over continuous supply interruptions in the Middle East.
Saudi Aramco reduced the July OSP for its flagship Arab Light to a premium of $9.50 per barrel above average Oman/Dubai benchmark prices as per a pricing document obtained by Reuters.
This represents a drop of $6 per barrel from June levels, which was in line with market expectations after a weaker trade flow in Asian spot markets. The price cut across other Saudi grades also falls by $6 per barrel for shipment to Asia due to rising concern over demand in the world’s largest importer of crude oil.
Analysts stated that this is driven by worsening refining margins and decreasing crude purchases from China, Saudi Arabia’s biggest customer in Asia. Refiners in China were reducing refining activities and running down inventories due to low profit margins.
The drop in China’s crude imports from Saudi Arabia in May and June has forced the latter to reduce its price to keep its export prices competitive in the region.
This decision has been made despite ongoing global tension in the oil markets as a result of the ongoing U.S.-Israel warfare against Iran, which heavily impacted the Strait of Hormuz, which accounts for nearly one-fifth of the world’s oil trade to pass through.
Although Saudi Arabia diverted some exports to its East-West Pipeline to the Red Sea’s Yanbu port, limited shipping routes in the region still put constraints on the overall supply volume.
Nevertheless, July prices are still much higher than those before the start of the Iran-induced turmoil this year.
This recent decision also comes after the OPEC+ decision to increase output in July, signaling that oil producers have been attempting to keep oil markets in control amidst the high supply uncertainty and low demand growth, even though the real supply volume is constrained by logistic issue and geopolitical risks.
