Saudi Arabia set to cut February crude prices for Asia amid supply glut

Saudi Arabia, the world's largest oil exporter, is poised to cut the February price for its benchmark Arab Light crude for Asian customers for the third consecutive month, reflecting a broader trend of declining spot market prices driven by abundant supplies.

The official selling price (OSP) for Saudi Arabia's flagship Arab Light crude is anticipated to decrease for February loadings. 

A Reuters survey of six Asia-based refining sources suggests a potential fall of 10 to 30 cents per barrel. 

The adjustment is expected to set the premium at 30 cents to 50 cents above the average of the Oman/Dubai benchmark quotes.

This change reflects market dynamics and refining demand in the Asian region.

This decline would represent the third consecutive monthly drop, deepening losses from the January premium of 60 cents a barrel, which was already the lowest in five years.

The OSP for Arab Extra Light crude oil is anticipated to decrease in February, according to the latest market survey.

This decline is projected to be in the range of 10 to 20 cents per barrel.

Market dynamics for heavier grades

In contrast, the outlook for the heavier grades, Arab Medium and Arab Heavy, suggests greater stability. 

The survey indicated that the OSPs for both Arab Medium and Arab Heavy crude may either remain unchanged from the previous month or experience only a marginal downward adjustment, potentially dipping by a maximum of 10 cents per barrel. 

This differential movement in OSPs across the crude grades reflects varying supply-demand dynamics and perceived quality premiums in the Asian crude oil market for the upcoming month.

Cash Dubai's premium over swaps in the spot market experienced a rise last week, recovering from a decline since October, attributed to ample supplies. 

This month, the premium has averaged 61 cents per barrel, marking a decrease from November's average of 88 cents. 

Furthermore, this average is now half of the premium recorded in October, highlighting the recent volatility and downward trend from its peak.

Global supply pressures and OPEC+ actions

The downward pressure on oil prices was a direct result of increased global crude supply. 

This surge in production stemmed from two primary sources.

Firstly, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, deliberately ramped up their output. 

This strategy often aims to balance the market or respond to perceived demand growth. 

Secondly, significant production increases occurred outside of the OPEC+ alliance, most notably within the US.

This combined growth from both major producing groups flooded the market, pushing prices lower due to the excess supply relative to global demand.

OPEC+ has temporarily halted increases in oil production for the first quarter of 2026.

This decision follows the release of approximately 2.9 million barrels per day into the market by eight member countries since April 2025.

According to the International Energy Agency's most recent monthly oil market report, the worldwide oil supply is projected to surpass demand by 3.84 million barrels per day (bpd) in 2026.

Meanwhile, disruptions to Venezuelan oil exports have had a minimal impact on the Middle East market, as the Latin American producer accounts for only about 1% of global supply.

Most of its crude is shipped to smaller, independent refiners in China.

Saudi Aramco, the state oil giant, determines its crude prices after considering customer recommendations and assessing the monthly change in the value of its oil, which is calculated based on product prices and yields.

These Saudi crude OSPs, typically released around the fifth of each month, influence the pricing trend for Iranian, Kuwaiti, and Iraqi crudes. 

This collective pricing affects approximately 9 million barrels per day (bpd) of crude destined for Asia.