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SINGAPORE: Top oil exporter Saudi Arabia could slash October prices for most crude grades it sells to Asia after a plunge in spot premiums as tepid fuel demand and increasing arbitrage cargoes put pressure on oil prices in the region.

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

That would mark the first Saudi price reduction in four months after the country raised September OSPs to record high levels of $10.95 a barrel for Arab Extra Light against the Oman/Dubai average and $9.80 a barrel for Arab Light.

Spot premiums for regional benchmarks Dubai, Oman and Murban plummeted in August as fears over a global recession and the narrowing spread between Dubai- and Brent-linked grades dented demand for Middle Eastern crude oil.

Saudi Arabia typically takes cues from Dubai’s market structure, which reflects the first- and third-month price spread, when setting the prices. In August, the spread slid about $4.26 a barrel.

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

Oil rises on prospect of OPEC+ supply cut

Despite expectations of recovering demand from India and Indonesia when the monsoon season passes in late September, fuel consumption in China, the world’s top oil importer, could still be gloomy as the country continues to grapple with COVID-19 restrictions.

Sinopec, Asia’s No.1 oil refiner, forecasts its second-half refinery throughput to plunge 8% from a year ago and the annual processing volume for 2022 to fall by 6% versus 2021.

“Some Saudi cargoes that were shipped to the west are now flowing back to Asia because of sluggish demand in Europe, which would also depress prices,” said another respondent.

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

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 9 million barrels per day (bpd) of crude bound for Asia.

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.

Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.

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