Saudi Arabia has announced a reduction in the price of crude oil sold to Asia, with the premium for its flagship Arab Light grade set at $2.20 per barrel above the Dubai/Oman benchmark for shipments scheduled in October. This price cut represents a decrease of $1 per barrel from September, exceeding analyst expectations of a smaller reduction ranging from $0.40 to $0.70, according to Reuters. Additionally, prices for other Saudi oil grades have been cut by $0.90 to $1 per barrel for the same month.
The decision to lower prices reflects expectations of softer demand for oil in Riyadh. Reports from oil traders operating in the Middle East and Asia indicate that these adjustments come amid a backdrop of stable oil prices, which remained largely unchanged earlier in the week, as noted by Bloomberg.
China’s Impact on Oil Demand
The Asian oil market is particularly sensitive to developments in China, the world’s largest crude importer. This year, signals from China regarding oil demand have been mixed. Following a slow start in the early months of 2023, Chinese crude oil imports saw an uptick in March and April, maintaining elevated levels since then. Analysts attribute this increase primarily to strategic stockpiling rather than a significant recovery in demand.
Recent forecasts regarding China’s oil demand growth have intensified. A state oil research company has projected that peak oil demand in China may occur in 2027, with an anticipated increase of only 100,000 barrels per day this year. This forecast suggests that demand may be limited by the rising popularity of electric vehicles (EVs) and liquefied natural gas (LNG) trucks. According to the same report, EVs alone are expected to displace approximately 25 million tons of gasoline in 2023, equivalent to around 580,000 barrels daily.
Despite the growing presence of EVs in the market, recent updates indicate a slowdown in EV sales growth. In August, the combined sales growth of EVs and hybrids fell to 7.5% year-on-year, down from a 12% increase in the previous month. This trend raises questions about the pace of transition in the automotive industry and its implications for oil demand.
As the global oil market navigates these complex dynamics, Saudi Arabia’s pricing strategies will likely continue to evolve in response to shifting demand patterns and geopolitical factors. The coming months will be critical in determining how these trends unfold, particularly in relation to the Chinese market, which remains a focal point for oil traders worldwide.
