Will Saudi Arabia Raise September Crude Oil Prices?

The word is out that the world’s largest exporter of crude oil, Saudi Arabia might for a third month in a row, raise the price of its Arab Light to Asian Refiners. Furthermore, Saudi Arabia’s voluntary output cuts may indeed be extended resulting in the tightening of supply of high sulphur/sour crude.

Experts suggest that for its Arab Light Crude Saudi Aramco may raise the OSP (Official Selling Price) by roughly 45 cents in September to USD3.65 above that of Dubai/Oman quotes which would reflect Arab Light Crude’s highest premium this year.

Various analysts and experts have forecasted that Saudi Arabia will extend their voluntary cut to include September, when on August 4th OPEC + has their monthly meeting, referred to as the Joint Ministerial Monitoring Committee meeting. The current supply reductions have been a boon for oil prices especially for sour crude*.

An important indicator as to whether the OSP will move up or down is backwardation** which is a pricing structure where prices for future supply are lower than that of prompt supply, which suggests a higher demand for oil and less supply. If there is supply tightness, this is reflected in the widening of the spread which in July widened by 43 cents a barrel, typically indicating a similar rise can be expected in the OSP.

Meanwhile back on Wall St, analysts estimated that globally the demand for oil reached an all-time high in July of 102.8 million bpd. This translates to a bigger than expected 1.8 million bpd deficit in Q3 and Q4 of this year and, potentially in 2024, a circa 0.6 million bpd deficit.

 However, the same analysts also said that OPEC spare capacity has risen significantly over the past year, plus declining US oil production costs, and international projects showing a return to growth, will limit the upside to prices.

*Sour Crude – is known for its fairly high sulphur content making it more difficult and costly to refine and can be viewed as a less desirable form of crude oil.

**Please note the backwardation is calculated on the widening or contracting of price spreads on the Middle East Benchmark Crude Dubai, which along with Brent are the most widely used benchmarks in the world for pricing physical crude.