An employee looks at the Saudi Aramco oil facilities in Abqaiq, Saudi Arabia October 12, 2019. REUTERS/Maxim Shemetov/File Photo

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SINGAPORE, Aug 29 (Reuters) – Saudi Arabia, the world’s biggest oil exporter, may cut October prices of most grades of crude it sells to Asia after spot premiums fell, weakness fuel demand and increasing arbitrage cargoes putting pressure on oil prices in the region.

State-owned oil giant Saudi Aramco could cut the official selling price (OSP) of its flagship Arab Light crude by around $4.50 a barrel in October, according to five refining sources interviewed by Reuters on August 29.

This would mark the first reduction in Saudi prices in four months after the country raised September OSPs to record highs of $10.95 a barrel for Arab Extra Light compared to the Oman/Dubai average and $9.80. barrel for Arab Light.

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Spot premiums for regional benchmarks Dubai, Oman and Murban fell in August as fears of a global recession and a narrowing spread between Dubai-linked and Brent grades weighed on demand for crude oil from the Middle East.

Saudi Arabia generally takes inspiration from the Dubai market structure, which reflects the first and third month price differential, when setting prices. In August, the spread fell to around $4.26 a barrel.

“The overall demand in Asia is not very strong. As more and more arbitrage cargoes from the United States and West Africa flow into Asia, the tension problems of the supply have mostly waned,” said one respondent.

Despite expectations of a pick-up in demand from India and Indonesia when the monsoon season passes at the end of September, fuel consumption in China, the world’s largest oil importer, could still be bleak as the country continues to struggle with COVID-19 restrictions.

Sinopec, Asia’s No.1 oil refiner, expects its second-half refining throughput to fall 8% from a year ago and annual processing volume for 2022 to drop 6% from 2021 . [nL1N305052]

“Some Saudi cargo that was being shipped west is now going back to Asia due to weak demand in Europe, which will also drive prices down,” another respondent said.

Some major oil producers, including Saudi Arabia and the United Arab Emirates, have signaled the possibility of introducing production cuts to balance the oil market. Read more

Saudi crude PSOs are typically released around the fifth of each month and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting over 9 million barrels per day (bpd) of crude destined for Asia.

Saudi Aramco sets its crude prices based on customer recommendations and after calculating how the value of its oil has changed over the past month, based on product yields and prices.

Saudi Aramco officials have a policy of not commenting on the kingdom’s monthly PSOs.

Below are the expected Saudi prices for October (in $/bbl compared to the Oman/Dubai average):

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Reporting by Muyu Xu; Editing by Emelia Sithole-Matarise

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