Asia Expects Big Saudi Price Cuts, But Producer May Deviate

Asian refiners forecasted big price cuts of $2-$3 a barrel for Saudi Arabia’s January crude exports, but some expected the top oil exporter to reduce prices by a smaller margin as global benchmarks have already hit multi-year lows.

Saudi Arabia cut prices for crude sold to Asia in four of the past five months, part of its strategy in a fight for market share against non-OPEC producers. Global oil benchmarks tumbled to five-year lows this week after OPEC decided against an output cut after its meeting in Vienna last week.

Big price cuts would signal that the market share battle continues, while smaller-than-expected cuts might indicate global prices have fallen enough for OPEC’s top producer and that it thinks further reductions would not have a significant impact on its market share.

The official selling price (OSP) for Saudi’s flagship Arab Light could hit the lowest in at least 10 years if the forecast price cuts materialise, Reuters data showed.

“It’s too big a cut and might send shockwaves through the market,” said an oil analyst who declined to be named.

Some traders said such big price cuts would be excessive and likely would not win more market share for Saudi Arabia.

Traders from five Asian refiners expect Arab Light’s official selling price (OSP) to fall by $2-$3 a barrel in January, a Reuters survey showed on Monday.

The forecasts are based on an unofficial formula of monthly price changes for the two Middle East benchmarks, Dubai and Oman. Traders also factored in a cut to compensate for a rise in the Oman benchmark due to strong demand from China.

“December OSPs were up due to Chinaoil’s bids (in trading for the previous month), hence, they will have to do a double correction for January,” a trader with one of the Asian refiners said.

Chinaoil, trading arm of PetroChina, in October bought 24 million barrels of Middle Eastern crude for December loading, pushing spot differentials for benchmark Persian Gulf grades to multi-month highs.

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 12 million barrels per day (bpd) of crude bound for Asia.