Key Takeaways
Saudi Arabia is expected to cut its June Official Selling Prices (OSP) for Asia by $5 to $12 per barrel from May's record highs.
The move follows a sharp drop in spot market premiums and cooling demand from key importers, including a record-low purchase volume from China for May.
Expected Saudi Prices for June ($/bbl vs Oman/Dubai):
Saudi Arabia is poised to slash its official crude selling prices for Asia in June, with potential cuts of over 50% from record premiums set in May, signaling that demand destruction is beginning to outweigh the geopolitical risk premium from the war in Iran.
"The June OSP for flagship Arab Light crude might slide to a premium of $7.50 to $14.50 a barrel above the average Dubai and Oman quotes, $5 to $12 a barrel lower than the OSP for May," four sources said in a Reuters survey.
The expected price cut follows a dramatic weakening in the spot market. The cash Dubai price's premium to swaps collapsed to $9.17 on Monday, down from a historical high of more than $60 in March, according to Reuters data. The premium has averaged just $15.22 in April, less than half of the $38.30 average seen in March.
The move highlights a market torn between fears of supply disruptions and the reality of slowing demand. While the war keeps a floor under prices, the world's top oil exporter is now being forced to respond to Asian refiners balking at record-high costs, with a final decision on pricing expected around the fifth of the month.
The primary driver for the price cut is a noticeable cooling of demand, particularly from China. After Saudi Aramco hiked its May prices to all-time highs, Chinese refiners planned to buy just 20 million barrels of crude, the lowest volume on record. These refiners have been squeezed by weak margins as rising feedstock costs have outpaced what they can charge for fuel, a situation made worse by Beijing's curbs on refined fuel exports. Replacement cargoes from the U.S. and West Africa, along with increased Russian crude purchases by India, have also helped ease the panic buying that gripped the market in the immediate aftermath of the conflict.
Despite the cooling physical market in Asia, the broader oil market remains on edge. Diplomatic efforts to end the war in Iran have appeared to stall, keeping the Strait of Hormuz effectively closed and supporting prices. On Tuesday, Brent crude for June delivery climbed $1.85 to $110.08 a barrel, while U.S. benchmark crude added $1.43 to $97.80 a barrel. This creates a complex dynamic where physical crude prices for immediate delivery in Asia are softening, even as futures markets price in the risk of a wider, more prolonged conflict.
This article is for informational purposes only and does not constitute investment advice.
