By Florence Tan and Siyi Liu
SINGAPORE (Reuters) - Top oil exporter Saudi Arabia is expected to slash crude prices for Asian buyers in January to the lowest in years, largely tracking a slump in Middle East benchmark prices last month, traders said on Monday.
The January official selling price (OSP) for flagship Arab Light may fall by 70 to 90 cents a barrel from December to at least a four-year low, six sources at Asian refineries said in a Reuters survey.
The price cuts come after the gap between front and third-month Dubai prices narrowed in backwardation by 86 cents in November from the month before, Reuters data showed, despite TotalEnergies (EPA:TTEF) snapping up as much as 15.5 million barrels of crude on the S&P Global Platts window.
Backwardation refers to the market structure when prompt prices are higher than those in future months.
Last month, spot premiums for January-loading Middle East grades also fell by about half from the previous month on weak demand.
Arab Extra Light's OSP is expected to fall in line with Arab Light, while some respondents expect to see larger price reductions for heavier grades - Arab Medium and Arab Heavy - as fuel oil margins have weakened, the survey showed.
One respondent hoped for larger price cuts for heavy grades, as Chinese refining margins were still very poor.
Still, the outcome of the OPEC+ meeting on Dec. 5 is expected to determine supply in early 2025 and may influence Saudi OSPs, traders said, with some expecting state oil giant Saudi Aramco (TADAWUL:2222) to announce prices after the meeting is concluded.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, is discussing delaying its oil output hike due to start in January, OPEC+ sources told Reuters last week.
Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day of crude bound for Asia.
Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.
Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.
Below are expected Saudi prices for January (in $/bbl against the Oman/Dubai average):
DEC Change est.JAN OSP
Arab Extra Light +1.50 -1.00/-0.70 +0.50/+0.80
Arab Light +1.70 -0.90/-0.60 +0.80/+1.10
Arab Medium +0.95 -1.00/-0.65 -0.05/+0.30
Arab Heavy -0.20 -1.10/-0.65 -1.30/-0.85
Source: Reuters, trade