Key facts
- Saudi Arabia is expected to cut August crude oil official selling prices by $6.50-$8.00 per barrel.
- The price cuts are attributed to the tentative reopening of the Strait of Hormuz and increased Middle Eastern supply.
- Arab Light crude's August price could reach a four-month low premium over Dubai/Oman benchmarks.
- Middle Eastern crude benchmarks have crashed amid the reopening and supply increase.
- At least five supertankers have shipped Saudi crude through the Strait of Hormuz, with four more ready to load.
- Exports are primarily destined for Asian markets like China and Japan.
- The UAE shipped a record volume of crude abroad in June.
- OPEC+ plans to boost August production quotas by 188,000 barrels daily.
Saudi Arabia is poised to significantly reduce its official selling prices (OSPs) for crude oil destined for Asia in August, with cuts of $6.50 to $8.00 per barrel anticipated for its flagship Arab Light and other grades. This move comes as Middle Eastern crude benchmarks have crashed amid the tentative reopening of the Strait of Hormuz and an increase in regional oil supply.
According to a Reuters survey of industry sources, such price reductions would push the premium for Arab Light crude over the average Dubai/Oman prices to a four-month low. The spot premiums for Dubai, Murban, and Oman crudes had already slumped into discounts last week, reaching their lowest levels in six years as the market priced in the Strait of Hormuz reopening.
This strategic pricing adjustment coincides with Saudi Arabia accelerating crude exports through the Strait of Hormuz. At least five supertankers have already passed through the vital waterway, with four more loaded or waiting to load at the port of Ras Tanura. These shipments are primarily destined for Asian markets, including China and Japan. The reopening of the Strait offers significant relief to Gulf oil producers, allowing them to bypass previous shipping constraints and capitalize on market conditions through spot sales.
Meanwhile, the UAE, after six decades as a member, decided to quit OPEC+ and is already boosting exports, shipping a record volume of crude abroad in June. This rise is attributed to the resumption of flows via the Strait of Hormuz and a ramp-up in UAE supply. However, these record volumes may be partially from oil stored during hostilities, implying volumes could weaken as storage drains.
The OPEC seven, including Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman, are set to decide on boosting their production quotas for August by another 188,000 barrels daily. This follows a similar production boost agreed for July. However, these hikes have largely remained on paper due to previous hostilities and the Strait of Hormuz closure, which particularly impacted Iraq's production.
The market's muted reaction to OPEC+'s planned output hikes raises questions about the group's relevance, especially with the U.S. emerging as a major competitor capable of rapidly increasing its own production. Global benchmarks have returned to pre-war levels, influenced by U.S. production records and recovering tanker traffic in the Strait of Hormuz.