SINGAPORE: Top oil exporter Saudi Arabia could raise September crude prices for customers in Asia for a third month even though refining margins have declined as high fuel prices and persistent COVID-19 restrictions in China hit demand.
State oil giant Saudi Aramco could hike the official selling price (OSP) for its flagship Arab Light crude by between 70 cents and $1 a barrel from the previous month, according to six refining sources surveyed by Reuters.
The increase would shoot the September price to a record level, surpassing the previous record of $9.35 a barrel above the Oman/Dubai average set for May.
Saudi typically sets the prices based on the monthly change in benchmark Dubai’s market structure, which reflects the first- and third-month price spread.
In July, supply tightness pushed front-month prices about $1.70 a barrel higher than those traded in the future month.
“But we think they won’t hike the OSPs as much,” said one respondent.
Profit margins at Asian refiners who process Dubai crude have plunged by as much as 97% over a month, with gasoline cracks even falling 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 respondent.
Asia’s top fuel exporter, Taiwan’s Formosa Petrochemical Corp, could reduce operating rates at its residue fluid catalytic cracking (RFCC) units, which are now running at full capacity, by 5% in the coming weeks.
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But refinery sources said that for now, the profits should still be able to support a moderate crude price increase.
China, the world’s top oil importer, is undergoing another round of partial lockdowns across the country, curbing fuel consumption. But the market expects a demand revival in the coming months as Beijing vows more stimulus to rev up its economic growth.
The respondents polled by Reuters also expect the price gap between Arab Light and Arab Heavy grades to slightly narrow following an improvement in fuel oil margins.
Last month, the light-heavy spread was at $4 a barrel, the widest level since October 2014.
Saudi crude OSPs set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day (bpd) of crude bound for Asia.
Saudi Aramco is likely to release monthly prices after a meeting between the Organization of the Petroleum Exporting Countries and allied producers on Aug. 3.
Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.
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