Saudi Arabia may raise May crude prices to Asia after OPEC+ cut

By Muyu Xu

SINGAPORE (Reuters) - Top oil exporter Saudi Arabia may raise crude prices for Asia in May after OPEC+ announced additional production cuts to shore up the market just as China's demand is expected to increase in the second quarter as refineries finish maintenance.

The May official selling price (OSP) for flagship Arab Light crude could be hiked by about 20 cents to $2.7 a barrel, a third month of increases, a Reuters survey of sources from five Asian refiners showed on Monday.

The market had been mostly expecting Saudi Aramco to cut the May OSP, which typically tracks Dubai's market structure to reflect the first- and third-month price spread. In March, the spread slid by about 30 cents.

Refiners revised their assessments after the Organization of the Petroleum Exporting Countries and their allies, including Russia, surprised markets on Sunday by announcing production cuts of about 1.16 million barrels per day (bpd) from May to the rest of the year.

They expect the extra cut from OPEC+ will tighten supply and put upward price pressure on crude from the Middle East, especially medium and sour grades that have already seen their price differentials with light grades narrowing due to stronger demand.

The respondents expect the prices of Arab Medium to rise by around 20 cents and Arab Heavy to increase by as much as 80 cents from the previous month.

China's oil demand is also expected to further recover in the coming months as refiners complete scheduled maintenance.

PetroChina forecast Chinese refined fuel demand to rise 3% this year from pre-COVID levels in 2019. A think tank of state energy group CNPC expects China's oil refinery throughput this year to rise 7.8%.

But the production reduction from OPEC+ could prompt Chinese and Indian refiners to seek more crude barrels from Russia, which could put a lid on Saudi's price hike, they said. Meanwhile, higher crude oil prices may boost inflation and take a toll on consumption.

Saudi crude OSPs are expected to be released after the OPEC+ ministerial committee meeting due on April 3, and may set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day (bpd) of crude bound for Asia.

State oil giant Saudi 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 May 2023 (in $/bbl against the Oman/Dubai average):

April Change est.May OSP

Arab Extra Light +2.70 -0.70/+0.00 +2.00/+2.70

Arab Light +2.50 -0.20/+0.50 +2.30/+3.00

Arab Medium +2.50 +0.10/+0.20 +2.60/+2.70

Arab Heavy +0.75 +0.00/+0.80 +0.75/+1.55

(Reporting by Muyu Xu and Florence Tan; Editing by Conor Humphries)