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Saudi Arabia, the world’s top oil exporter, is likely to significantly reduce crude prices for Asian buyers in January, potentially marking the lowest official selling prices (OSPs) in years. This decision follows a decline in Middle East benchmark prices and reflects ongoing market dynamics, according to a Reuters survey of Asian refinery sources.
Key Expectations for January OSPs
- Flagship Arab Light
- Predicted to drop by 70 to 90 cents per barrel from December levels.
- Expected OSP: $0.80–$1.10 above the Oman/Dubai average, the lowest in at least four years.
- Other Grades
- Arab Extra Light: Anticipated to decrease by $1.00–$0.70.
- Arab Medium: Estimated reduction of $1.00–$0.65, potentially setting its OSP to between -$0.05 and +$0.30.
- Arab Heavy: Predicted to see the steepest cuts, falling $1.10–$0.65, resulting in an OSP range of -$1.30 to -$0.85.
These cuts are largely attributed to:
- Weak refining margins: Especially in China, where refiners are struggling with poor profitability.
- Falling spot premiums: Premiums for January-loading Middle East grades halved in November compared to the prior month.
- Narrower backwardation: The gap between front- and third-month Dubai prices tightened by 86 cents last month, indicating reduced near-term demand.
Market Context
- Weak Demand and Refining Margins
Traders report lackluster demand for heavier Saudi grades like Arab Medium and Heavy, exacerbated by weaker fuel oil margins and struggling Chinese refining profitability. - OPEC+ Meeting Outcome
The OPEC+ meeting on December 5 will play a pivotal role in determining the group’s production policy for early 2025. This decision could influence Saudi Arabia’s pricing strategy, with Aramco likely to finalize January OSPs post-meeting. - Saudi Aramco Pricing Process
Aramco typically sets its monthly OSPs after consulting with customers and analyzing market data, including changes in yields and product prices.
Wider Impact
Saudi OSPs significantly influence pricing for other major oil exporters in the region, including Iran, Kuwait, and Iraq. These prices directly affect about 9 million barrels per day of crude bound for Asian markets.
While Saudi Arabia’s pricing cuts aim to maintain competitiveness amidst a challenging market, the ongoing OPEC+ deliberations and evolving global demand-supply dynamics will likely shape oil markets as 2025 approaches.
