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Saudi Arabia May Have Set the Price of Its Oil Too High

Asian buyers could reduce intake of term supplies from Saudi Arabia in January and look to buy more spot crude cargoes after the world’s top crude exporter reduced the price of its oil to Asia by less than expected, traders and refiners told Bloomberg on Wednesday.   

On Tuesday, Saudi Arabia cut the price of its flagship crude, Arab Light, loading in January for Asia by $0.50 per barrel over the Oman/Dubai average, the benchmark off which Middle Eastern crude exports to Asia are priced.  

While the cut was widely expected by the market and was the first reduction in the official selling price (OSP) of Arab Light for Asia in seven months, it was half of what market participants were anticipating.  

A Bloomberg survey of analysts showed that Saudi Arabia was expected to reduce its official selling price for the Arab Light crude for Asian buyers by around $1 per barrel—to around $3 a barrel over the Oman/Dubai average.

The actual price reduction put the price of Arab Light for January loadings to Asia at $3.50 per barrel over the Oman/Dubai quotes.  

Despite the reduction, traders and buyers at refineries in Asia see the Saudi price as high.  

“Saudi set the price too high. That could prompt some buyers to nominate less cargoes and turn to buy cheaper crude from other suppliers from the spot market,” a purchase manager with a refinery in Asia told Reuters.

Nominations are expected on Wednesday, but at least two buyers in Asia are considering nominating lower contractual supply from Saudi Arabia for January loadings, traders and refiners told Bloomberg.

The Saudis cut on Tuesday their OSPs across the board and reduced Arab Light prices to both Europe and the U.S., but the Asian buyers had expected deeper price reductions and are likely to turn to more spot supply from the Gulf amid falling prices signaling softer demand.

By Tsvetana Paraskova for Oilprice.com

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