Weak demand sees Aramco cut Jan Arab Light OSP for Asia-bound crude to 4-year low

Saudi Aramco's sharp cuts over the weekend to its January 2025 crude oil official selling prices for Asia-bound cargoes were within expectations, with the slashing of Arab Light's differential to a four-year low a sign of sharply weaker demand, market participants said.

Aramco in a Dec. 8 notice lowered the differential for its flagship Arab Light crude to Asia by 80 cents/b from December to plus 90 cents/b to the average of Platts Dubai and GME Oman, while other Asia-bound grades saw smaller declines in the range of 60-70 cents/b.

Traders surveyed by Platts, part of S&P Global Commodity Insights, had expected cuts ranging from 60 cents/b to $1.30/b for Arab Light in the lead-up to the OSP release.

"Looks pretty much in line with the market. In the past when [the Dubai] structure weakened the Saudis would often not follow. So I think these OSPs look fair and as much as can be expected," a trader said.

Notably, the Arab Light OSP differential was now at a low last exceeded by that for January 2021 cargoes, when it was at a premium of 30 cents/b to the average of Dubai/Oman.

Arab Light was also now priced at parity to Arab Extra Light, after having been at a premium to the latter since June cargoes.

The January OSP cuts by Aramco follow a particularly bearish November for the Middle East crude complex, as a rise in purchases of Russian and arbitrage crudes by Asia's largest crude importer China led to a softening in demand for January-loading Middle East grades, sources said.

Benchmark Platts cash Dubai -- a barometer of Middle East medium, sour crude value -- saw its differential against same-month Dubai futures plunge 91 cents/b on the month to a premium of 67 cents/b over November, its lowest for 2024.

"Saudi Arabia cut its selling price for oil to Asian markets in response to weak prices," said ANZ Research analysts Brian Martin and Daniel Hynes.

Nonetheless, some traders felt the producer had room to cut further, given that Arab Light remains at a slight premium to Platts Dubai.

"Maybe Arab Light could have been a tad lower but the ballpark is pretty much in line with the [bearish] November market," a second trader said.

It also follows a decision made Dec. 5 by OPEC+ to delay plans to increase crude oil output by three months until April, in an implicit acknowledgement that global oil demand growth continues to lag that of supply.

Sentiment for the current month's February-loading cycle was mixed. While sharply lower freight rates on the Arab Gulf-to-Far East route and potentially thinner arbitrage crude flows from the Americas could lend some support to the Middle East crude complex, a narrowing Brent-Dubai Exchange of Futures for Swaps spread could, nonetheless, see some Asian refiners turn to West African and North Sea crudes as an economical alternative, sources said.

The front-month February Brent-Dubai EFS, seen as a gauge of arbitrage economics for Brent-linked sweet crudes from West Africa and the North Sea into Asia, was pegged at $1.07/b at 11 am Singapore time (0300 GMT) Dec. 9.

This marks a low last exceeded on June. 14, when it was assessed at 93 cents/b at the 4.30 pm Singapore time (0830 GMT) Asian close.