A strong Dubai price has again put top oil exporter Saudi Arabia in a dilemma over whether to raise the prices of crude it sells to Asia to match the benchmark’s strength, or to cut to stay competitive in an oversupplied market.
Record purchases of October-loading crude by Chinaoil during a mechanism that sets the price of Middle East crude in Asia strengthened the benchmark, even as other grades are being pressed lower by a global glut.
Saudi Arabia is due to release October crude prices later this week, setting the trend for Iranian, Kuwaiti and Iraqi crude bound for Asia.
“The Dubai market is acting very erratic and it’s been moving in such a way that’s not reflecting underlying fundamentals,” a source with a Gulf oil producer said.
“Producers are walking on a thin line, but they can change and might need to lower or soften the price a little bit.”
If state oil giant Saudi Aramco keeps to its monthly price formula, the official selling price (OSP) for Arab Light should edge up in October from a month ago, a survey of five refiners showed.
Still, it may opt to cut prices to defend its market share in Asia, traders said.
“I don’t think Saudi will raise Arab Light price,” a trader with a North Asian refiner said. “They may cut prices to stay competitive.”
Saudi Aramco has deviated from its pricing methodology before. Last month, it increased September prices by less than forecast as it defends market share in Asia.
The October OSP for Arab Extra Light should also get a boost if Saudi follows its formula, but any price hike may make the grade less competitive to Abu Dhabi’s Murban crude, a trader said.
Heavier Saudi grades – Arab Medium and Heavy – are expected to post price cuts in October on weaker fuel oil cracks, traders said.
The OSP for Arab Medium may fall by up to 50 cents, traders said, but its price cut could deepen if Saudi Arabia followed last month’s spot market.
Similar crude Banoco Arab Medium was traded at discounts of up to $1 a barrel last month against its OSP.