Saudi Arabia, the world’s largest oil exporter, may hike September crude prices for Asian clients for the third month in a row, despite declining refining profits due to rising fuel costs and China’s continued COVID-19 restrictions.
According to six refining sources polled by Reuters, Saudi Aramco may raise the official selling price (OSP) for its flagship Arab Light crude by 70 cents to $1 per barrel from the previous month.
The rise would send the September price to a new high, breaking the previous high of $9.35 a barrel above the Oman/Dubai average recorded in May.
Saudi Arabia normally bases its pricing on the monthly change in the benchmark Dubai market structure, which reflects the first- and third-month price spread.
In July, supply constraints raised front-month prices by nearly $1.70 per barrel above future-month prices.
“But we think they won’t hike the OSPs as much,” remarked one response.
Profit margins for Asian refiners who process Dubai crude have fallen by up to 97 percent in a month, with gasoline cracks sliding into negative territory last week.
“A further hike in crude oil prices could prompt refiners to trim output to manage their balance sheets,” said another responder.
Formosa Petrochemical Corp (6505.T), Taiwan’s leading fuel exporter, may cut operating rates at its residual fluid catalytic cracking (RFCC) facilities, which are now working at full capacity, by 5% in the coming weeks.
However, according to refinery insiders, earnings should be enough to sustain a mild crude price hike for the time being.
China, the world’s largest oil importer, is enacting yet another round of partial lockdowns, reducing fuel use. However, the market anticipates a surge in demand in the coming months as Beijing promises more stimulus to boost economic development.
Reuters surveyed respondents also anticipate the price differential between Arab Light and Arab Heavy grades to shrink significantly as fuel oil margins increase.
The light-heavy differential was $4 per barrel last month, the biggest since October 2014.
Saudi oil OSPs set the pace for Iranian, Kuwaiti, and Iraqi crude prices, influencing around 9 million barrels per day (bpd) of Asian petroleum.
Following a meeting of the Organization of Petroleum Exporting Countries and associated producers on August 3, Saudi Aramco is expected to reveal monthly pricing.
Saudi Aramco officials do not comment on the kingdom’s monthly OSPs as a matter of policy.