Saudi Arabia expected to increase October crude oil prices to Asia
Saudi Arabia, a top oil exporter, is projected to raise crude oil prices it will be selling to Asia in October, tracking the strength in the Middle East price benchmark Dubai and a recovery in Asia’s refining margins.
Released around the fifth day of each month, the official selling price (OSP) of Saudi crude sets the trend for Iranian, Kuwaiti and Iraqi prices. This affects more than 12 million barrels per day (bpd) of oil bound for Asia.
Saudi Aramco could raise the official selling price for flagship Arab light by US$0.50 to US$1 per barrel for October, according to a Reuters survey of six refiners and traders.
The traders said this tracks a gain of US$0.52 in the contango spread between first and third month Dubai prices in August from July. Prompt prices are lower than those in future months in a contango market.
The price spread between Oman and Dubai markers has also narrowed in August. This, together with a recovery in margins for producing gasoil and gasoline, is providing impetus for Saudi Aramco to raise prices.
But according to the traders, this does not indicate a shift in Saudi’s focus away from boosting production and market share.
A hike of more than US$0.50 “goes against their (Saudi) strategy of securing more market share”, a trader with a North Asian refiner said.
Saudi Arabia could boost its crude supplies in August to a new record, overtaking Russia, the world’s top oil producer, and contributing to a record OPEC output in the same month.
“Saudi continues to emphasize production over price and as far as the two other OPEC major producers, Iraq and Iran, are concerned, they too are seeking to expand production capacity,” BNP Paribas Global Head of Commodity Markets Strategy Harry Tchilinguirian said on the Thomson Reuters Global Oil Forum.
“We see Saudi continuing the fight for market share, and this was reflected in repeated discounting of OSPs in a tit-for-tat process with Iran that was basically doing the same thing.”
Saudi Aramco had slashed the September price for its Arab Light crude oil for Asian customers by US$1.30, the largest cut for the flagship grade in nearly a year.
Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.
As a matter of policy, the company does not comment on the kingdom’s monthly OSPs.