DUBAI: Saudi Arabia cut oil prices by more than expected for buyers in Asia, its biggest market, for October after OPEC+ agreed to raise production.
Saudi Aramco is lowering pricing for Arab Light crude by $1.30 a barrel to a premium of $1.70 more than the regional benchmark, according to announcements seen by Bloomberg.
The state producer had been expected to reduce the oil selling price of the grade by around 60 cents a barrel, according to a survey of six traders and refiners in Asia last week.
OPEC+ producers this month decided to continue rolling back supply cuts implemented last year to support prices as the coronavirus slashed demand. Led by Saudi Arabia and Russia, OPEC+ has moved cautiously to get oil back onto the market amid continued flare ups of the virus that are slowing economic recovery.
"Because of the high Saudi OSPs in previous months, traders have diverted to the spot market instead of using long term contracts," said Giovanni Staunovo, a commodities analyst at UBS Group AG. Now Aramco is trying to get buyers to take more Saudi crude, he said. "With domestic demand likely leveling off in autumn, they have more barrels to be exported, so that's another reason to offer more attractive OSPs for buyers."
Refiners in Asia, who are Aramco's biggest customers were surprised by the scale of the cuts in the official selling prices, or OSPs. The price reductions may signal an effort by the Saudis to grab hold of market share as they raise output, according to some of the buyers.
They've suffered as swings in demand due to an uneven economic recovery from coronavirus are crimping profits from turning crude into fuels like gasoline and diesel.
Saudi Arabia sends more than 60 per cent of its crude exports to Asia, with China, South Korea, Japan and India the biggest buyers.
The premium for Arab Light for Asian customers will be cut from $3 a barrel for September, the highest since February 2020, just before the onset of the pandemic throttled oil markets.
Aramco is keeping pricing to the US and to Northwest Europe unchanged for October. For buyers in the Mediterranean region, Aramco is trimming pricing on all grades by 10 cents a barrel.
The Saudis and Russians led the Organization of Petroleum Exporting Countries and other partners together in the biggest round of collective cuts ever aimed at rescuing oil markets.
Now the partners see a dearth of barrels on the market through the end of this year as economies recover.
Still, they're proceeding slowly, limiting monthly increases and evaluating demand so as to avoid flooding the market.
OPEC+ agreed in July to raise production by 400,000 barrels a day each month from August to unwind production cuts over the next year. Crude markets have seen rising demand with Brent crude trading up 40 per cent this year. Brent traded at about $73 a barrel last week.
Most Middle Eastern countries set monthly prices as a premium or discount to a benchmark.
Aramco's OSPs serve as a bellwether for oil markets and often lead the pricing trend in the region.
Abu Dhabi issues its OSP based on trading in crude futures, a step in its efforts to establish its oil as the regional benchmark.