SINGAPORE – World’s largest oil exporter Saudi Aramco has reduced the volume of July-loading crude that it will supply to at least five buyers in Asia, seven sources said on Monday.
The cuts were mainly for medium and heavy grades and were seen at refineries in countries such as China, the sources with knowledge of the matter said.
Four of the refiners saw smaller July cuts than what they had received in June. The sources declined to be named due to sensitivity of the matter.
The move followed a deal struck by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia to keep production cuts of 9.7 million barrels per day, or 10% of pre-coronavirus world demand, until the end of July.
Saudi Arabia said it will end its deeper, voluntary cuts amid signs of global demand recovering.
Tighter Middle East supplies and improving refinery appetite for crude have prompted Saudi Aramco to hike July official selling prices (OSPs) to Asia more than expected even though refining margins and oil demand have yet to catch up with the rising crude valuation, the sources said.
“Increased OSPs have caught us by surprise and these are not attractive to refiners specially in a market where refining margins are weak,” said BPCL’s head of refineries R Ramachandran.
This has led at least one major Asian buyer to request for almost a third less of its contract volume for July, one of the sources with direct knowledge of the matter said.
Two other sources said they will increase the purchase of cross-region arbitrage cargoes this month, such as West African crude and U.S. crude, that are priced more competitively and reduce the purchase of expensive Middle Eastern oil.
Saudi Aramco did not immediately respond to a request seeking comment outside of business hours.