Florence Tan and MuyuXu

SINGAPORE (Reuters – Saudi Arabia is likely to reduce crude oil prices sold to Asia this June, after the benchmarks dropped from their previous record. The drop was caused by COVID lockdowns that curtailed the demand in China. China is the largest crude importer in the world.

Last month, global markets were shaken by Western sanctions against Russia, which is the largest combined crude oil and products exporter in the world. This could reduce supplies and push up Middle East spot premiums as well as term prices to new highs.

COVID-19 China restrictions cooled the demand and caused prices to fall this month. Additionally, huge quantities of Russian oil are being shipped to China and India despite European sanctions. Meanwhile, Japan and South Korea are increasing their strategic oil reserves and easing concerns about supply.

State oil companies were created to reflect these changes. Saudi Aramco TADAWUL: The official selling price (OSP), for the flagship Arab Light crude oil in June will be reduced by $5-$5.50 a barr from a record premium at $9.35 a barr above average Platts Dubai or Dubai Mercantile Exchange Oman, according to a Reuters survey.

One respondent stated that the price drops are due to weak Chinese refining margins, as well as a lack product export quotas which prevent Chinese refiners shipping excess fuel.

A second respondent said that he expected strong refining margins in support of OSPs. He is the only person who expects smaller price drops at $3-4 a barrel.

This week saw record profits for Asian oil refiners. The reason? Higher fuel demand, and increased fuel exports to Europe in order to make up the Russian deficit.

Saudi crude supply could increase further because OPEC+ will likely stick to its agreement and agree a small production increase for June. This affects approximately 9 million barrels per hour (bpd), of crude crude headed for Asia.

Saudi Aramco’s crude oil prices are determined based on customer recommendations and calculated based both on product and yield prices.

Saudi Aramco representatives do not speak out about the monthly OSPs of Saudi Arabia as an issue of policy.

Here are the expected Saudi prices in June, (in USD/bbl compared to Oman/Dubai’s average):MAY change est.JUNE OSP

Arab Extra Light +9.60/-4.20 +4.10/+5.40

Arab Light +9.35 -5.60/-4.00 -3.75 /+5.35

Arab Medium +9.30/-5.15/-3.60 (+4.15/+5.70)

Arab Heavy +7.95 -5.95/-3.40 +2.00/+4.55

Source: Reuters. Trade