Saudi Arabia to slash January crude oil prices for Asia?

Top exporter, Saudi Arabia, is expected to slash the price of crude oil shipped to Asia for January, to the lowest in years, traders told Reuters on Monday. 

The January official selling price (OSP) for flagship Arab Light may fall by 70 to 90 cents a barrel from December to at least a four-year low, according to a Reuters survey.

The price cuts come amid growing concerns about poor demand from top importer, China. The Asian giant has been struggling with its economy for several months. 

Crude oil imports by China have dipped over the last few months, which have significantly weighed on global consumption of the commodity. 

The International Energy Agency said the oil market will experience a supply overhang next year, while global oil demand showing muted growth.

Gap between front- and third-month Dubai prices narrowed

According to Reuters, the gap between front- and third-month Dubai prices have narrowed in backwardation by 86 cents in November from the month before. 

Backwardation refers to a situation where the spot prices of a commodity are higher than those of its futures contracts.

In November, spot premiums for January-loading Middle East grades fell by half  from the previous month on poor demand, Reuters said in the report. 

According to the report, Arab Extra Light’s OSP is expected to fall in line with those of Arab Light. 

Larger price reductions were expected for heavier crude grades such as Arab Medium and Arab Heavy as fuel oil margins have weakened, the Reuters survey showed. 

Focus on OPEC+ meeting

Traders told Reuters that Saudi Aramco is likely to announce the OSPs for exports to Asia after the ministerial meeting of the Organization of the Petroleum Exporting Countries and allies on Thursday. 

OPEC+ rescheduled its meeting to Thursday from Sunday last week, citing scheduling inconsistencies. 

The cartel is expected to announce its production policy from January.

The market expects OPEC to extend its steep voluntary production cuts beyond the end of this year. 

OPEC+ was scheduled to increase oil production by 180,000 barrels per day from December and unwind some of its voluntary output cuts. 

However, lower oil prices and fears about oversupply prompted the group to extend those cuts till the end of December. 

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 of crude bound for Asia, according to Reuters.

Oil prices in the green

Oil prices rose on Monday as the market was optimistic about China’s crude oil demand after positive economic data. 

China’s manufacturing activity rose to its highest level in five months during November. 

This raised hopes of a pick up in oil demand in the country, supporting prices. 

Moreover, increasing geopolitical tensions in the Middle East have also kept the market on its toes. 

The price of West Texas Intermediate crude oil on the New York Mercantile Exchange was $68.88 per barrel and Brent was $72.67 per barrel, both up by 1.2%.