Top oil exporter Saudi Arabia will probably cut prices for most grades of crude it sells to Asia in September, after two months of increases, as weak demand dragged down the spot market, a Reuters poll showed yesterday.

The producer could cut the September official selling prices (OSPs) for Arab Medium and Heavy by up to $ 1 a barrel from the previous month, and the OSP for Arab Light and Arab Extra Light by 60 cents a barrel, according to the median of estimates by six traders and refiners.

“Crude demand is not really there, while supply remains ample and that’s putting pressure on the differentials,” said a trader with a North Asian refiner.

“So all grades should be adjusted lower although medium and heavy grades may see more correction than the lighter ones.”

Fuel oil cracks to Dubai worsened in July, with the discount widening to as much as $ 4.46 a barrel by mid-July from 60 cents in mid-June, Thomson Reuters data shows, suggesting that heavier grades of crude may come under pressure.

Naphtha cracks fared slightly better, with the discounts hovering around $ 10.83 a barrel by end-July, little changed from $ 10.43 at the beginning of the month.

However, they are still weaker than the $ 8.25 a barrel discounts seen in the middle of June.

Complex refinery margins have been steadily improving, to $ 8.96 a barrel this week, from $ 6.31 at the beginning of the month.

Supplies remained ample as three of the top four importers of Iranian crude — India, Japan and China — continued to import, despite expectations to the contrary after sanctions on Iran by the European Union and the US came into effect on July 1.

South Korea may also resume imports from the Middle Eastern nation after completely halting them in July, the economy minister said, highlighting efforts by Asian buyers to keep crude coming in from Iran despite the dispute with the west over its nuclear programme.

The US on Tuesday introduced new sanctions against foreign banks that help Iran sell its oil and said the measure would add pressure on Tehran for failing to meet its international nuclear obligations.

Weakness was further aggravated by the global slowdown as well as economic weakness in China, the region’s biggest consumer.

China’s implied oil demand fell 0.4% in June from a year ago to a 20-month low as refineries scaled back production and raised fuel exports to trim bulging stockpiles.
The spot market for September Middle East crude in Asia took a hit as a number of refineries had to close or delay their restart unexpectedly.

Japan’s largest refiner JX Nippon Oil & Energy Corp shut a refinery for a safety check while Idemitsu closed about a third of its capacity after a fire in July.

A third Japanese refiner, Cosmo Oil Co, said on Tuesday it was delaying the restart of its 120,000 barrels-per-day No2 crude distillation unit at its Chiba refinery to August or later, from the previous goal of late July.

That led most Middle Eastern grades to slip into discount to the OSPs in the spot market.

“When everything is trading at a discount, for sure the OSPs have to come down,” said a trader at a western trading house.

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting some 7mn barrels per day (bpd) of crude bound for Asia.