State oil giant Saudi Aramco may cut the official selling
price (OSP) for the medium sour grade by about US$1.50/barrel in February,
according to four respondents surveyed by Reuters, in line with the move in the
Dubai benchmark.
That would drag the February Arab Light price to a level
last seen in November 2021, and about US$1.75 a barrel over the Oman/Dubai
average.
"The
near-term market outlook is dim. More Russian barrels are expected to flow to
Asia, but demand is not picking up," said one respondent.
The price cut comes as Russia diverts its oil from Europe to
Asia, after the European Union banned seaborne crude oil imports from December
05, 2022 alongside a price cap introduced by the Group of Seven (G7) nations
that restricts Russian oil trade using Western financial, shipping and
insurance services.
Though, Moscow last week banned crude sales to countries
that observe the price ceiling on Russian crude oil, its key oil clients in
Asia would be unaffected as they did not join the price cap coalition.
Russia
became the top crude supplier to both China and India in November, as the Asian
countries took advantage of the steep discounts, while the western countries
eschewed business with Moscow.
Oil demand is also unlikely to return imminently even though
China has removed its stringent COVID-19 restrictions. The sharp spike of
infections in the country has dampened people's willingness to travel, the respondents
said.
China has raised export quotas for refined oil products in
2023's first batch, a further effort to spur refinery production and capture
healthy export margins amid slow domestic demand.
Saudi crude OSPs are usually released around the fifth of
each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting
about 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.
