May 1, 2017 / 4:00 AM / 3 months ago

Saudi Arabia may cut June light crude prices to nine-month low

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A gas flame is seen in the desert near the Khurais oilfield, Saudi Arabia June 23, 2008.Ali Jarekji/File Photo

DUBAI (Reuters) - Top oil exporter Saudi Arabia is expected to cut the price of its flagship Arab Light by 40-50 cents a barrel in June to the lowest in nine months, a survey of Asian refiners showed.

Official selling prices (OSPs) are expected to fall across the board for Saudi crudes sold to Asia in June, after a fall in the Middle East benchmark Dubai crude due to ample oil supplies, the survey of five refiners found.

"We expect Saudi OSPs to fall as the spot market has collapsed amid oversupply," an analyst with a North Asian refiner said, adding that the June Arab Light OSP will drop by at least 50 cents a barrel.

Reflecting weak demand, the spread for first and third month cash Dubai prices widened in contango in April from a month ago, traders said.

In a contango market, prompt prices are lower than those in future months as ample supplies weigh on the spot market.

Last month, almost all grades of Middle East crude loading in June traded at discounts to their price markers as they faced stiff competition from record flows of oil shipped to Asia from Europe and the United States in recent months, particuarly as U.S. shale production grows.

Demand from China and Japan has also slowed as some refining units have yet to return from maintenance, while independent Chinese refiners are waiting for more import quotas to be issued by Beijing.

Most of the survey respondents expect Arab Light crude to be cut by 40 cents in June. The respondents expect smaller price cuts for Arab Medium and Arab Heavy crude as Saudi Arabia could continue to tighten exports of these grades to comply with a deal by OPEC and some non-OPEC producers to cut output.

The Organization of the Petroleum Exporting Countries will decide in late May whether it will extend output cuts for another six months in a bid to draw down global inventories.Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 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.

Reporting by Florence Tan; Editing by Richard Pullin

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