Saudi Arabia Expected to Lower Oil Prices for Asia

Saudi Arabia's strategy of restricting production to push up prices is putting it at risk of losing market share, with Saudi Aramco's flagship oil grade for Asia in January next year expected to see the largest price cut since February.

According to foreign media surveys, Saudi Aramco is expected to lower its flagship oil grade prices for Asia for the first time since June, due to the influx of cheap oil from the United States and Europe into the global market, intensifying competition among suppliers in the world's largest oil import region.

The median forecast from a Bloomberg survey of six refineries and traders predicts that the Saudi state-owned oil company will lower the official selling price (OSP) of Arab Light crude oil for Asia in January next year by $1.05 compared to the previous month, which would be the largest price cut since February.

Spot crude oil prices in Asia have softened over the past month, with global benchmark Brent crude prices falling about 15% from their peak at the end of September, making it more difficult for Saudi Arabia to maintain unchanged selling prices. At the same time, increased crude oil supplies from the United States, Guyana, and the North Sea highlight the risk that Saudi Arabia's strategy of restricting production to push up prices is putting it at risk of losing market share.

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Due to supply restrictions from OPEC+ oil-producing countries, oil from outside the Middle East is more attractive to Asian buyers. The price of Dubai crude oil, the pricing benchmark for most Persian Gulf crude oils, has remained relatively strong compared to other crude oil varieties over a period of time.

Data from PVM Oil Associates shows that Dubai and Brent crude oil prices are currently near parity, which is an unusual situation given that global benchmark crude oil prices are generally higher.

The price of WTI crude oil is about $5 per barrel lower than similar crude oil from the Middle East.

Saudi Aramco usually announces the OSP for the following month on the 5th of each month, and most other major Middle Eastern crude oil exporters usually follow Saudi Arabia's pricing policy.

In the aforementioned survey sample, respondents expected the range of Saudi Aramco's price cuts to be between 75 cents and $2, based primarily on the assumption that Saudi Arabia will extend its unilateral production cut plan of 1 million barrels per day until next year.

The OPEC+ meeting has been postponed to this Thursday, and on Tuesday, sources revealed that negotiations are difficult, and the meeting may be further delayed.On Tuesday, international crude oil prices recorded their largest increase in a week, as traders prepared for the upcoming OPEC+ meeting while weighing signs that U.S. interest rates have already peaked. The rise in crude oil prices was primarily supported by the weakening of the U.S. dollar, with the Bloomberg Dollar Index falling to its lowest level since August. Policymakers, including Federal Reserve Governor Waller, hinted that the Fed would stop raising interest rates. The weakness of the dollar makes commodities more attractive to overseas buyers. Yeap Jun Rong, a market strategist at IG Asia Pte in Singapore, said: "The dollar is weighed down by the Fed's dovish stance, and this expectation has played a significant role in driving oil prices. At the same time, all eyes will be on whether OPEC+ can take further measures to support prices." In addition, data from the American Petroleum Institute (API) showed that in the week of November 24, U.S. API crude oil inventories decreased by 817,000 barrels, and inventories in Cushing also declined. If confirmed by government data to be released on Wednesday, this would mark the first decline in crude oil inventories in the United States and its main oil storage hub in six weeks.

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