Top oil exporter Saudi Arabia is expected to slightly increase its July official selling prices (OSPs) of light crude for Asia, as margin weakness and demand uncertainty cap the upside despite stronger crude benchmarks, a Reuters survey showed.
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The expected adjustment for Arab Light tracked the price strength in Middle East crude oil benchmarks Cash Dubai and DME Oman, which in May saw their premiums to Dubai swaps up by 14 cents and 8 cents respectively from April.
But weakness in Asia’s refining margins, also known as cracks, in particular for fuel oil, is expected to bring cuts in July OSPs for heavier Saudi crude grades, according to three of the respondents.
Asia’s crack for 0.5% very low-sulphur fuel oil (VLSFO) fell sharply in the second half of May to five-month lows amid concerns of ample supplies and weak demand in the spot bunkering and power generation sectors.
Asia’s crack for gasoline also took a beating in May as fresh mobility restrictions amid a sharp rise in coronavirus cases from new variants in parts of Asia raised demand concerns for transportation fuels.
Gasoil and jet fuel, which benefited from higher refining margins last month thanks to a relatively faster demand recovery in the West that was boosting arbitrage shipments out of Asia, also struggled with COVID-19-induced demand weakness in several regional markets.
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