Saudi Aramco has notified at least five North Asian refiners, mostly Chinese, that it will be supplying less than contracted volumes of crude oil in July, several sources with knowledge of the matter said on Thursday.
The cuts to Chinese refiners come as more cheap Russian oil heads to the world’s top oil importer, which has refused to condemn Russia’s invasion of Ukraine. Chinese oil demand has also been depressed by COVID-19 restrictions in the past two months.
In addition, demand for Saudi crude has been climbing in Europe where the European Union has moved to phase out Russian crude and European buyers are racing to find other suppliers.
“Saudi crude supply is very tight in the market,” a Singapore-based trader said.
Four major Chinese refiners and one in North Asia will be receiving less Saudi crude oil loading in July, the sources said.
Another three North Asian refiners and one South Asian refiner are receiving full allocations, they said.
Saudi Aramco is also stepping up crude shipments to its joint venture refinery with Malaysia’s Petronas in Pengerang, one of the sources said.
Saudi Aramco did not immediately respond to a request for comment.
Saudi’s oil supply cuts to China also come after the world’s top oil exporter raised its official selling prices (OSPs) more than expected.
Saudi Arabia and other OPEC+ states agreed this month to hike production to offset Russian output losses by 648,000 barrels per day (bpd) in July and a similar amount in August versus the initial plan to add 432,000 bpd a month over three months until September.
But the group’s production is likely to fall short of official targets, keeping global markets tight during peak summer season demand in the northern hemisphere, analysts said.
Saudi’s OSP for July-loading Arab Light to Asia rose by $2.10 a barrel from June to $6.50 a barrel over Oman/Dubai quotes, just off an all-time-high recorded in May.