SINGAPORE: Saudi Arabia is expected to cut the official prices of crude it sells to Asia in September on a weaker Dubai market and poor refining margins, trade sources said.

Flagship Arab Light crude could fall by 20-30 cents a barrel, down for a second straight month, a survey of five refiners and traders showed.

Official selling prices (OSPs) “should be cut because margins have gotten worse,” a trader with a North Asian refiner said.

Refiners’ profit from producing a barrel of gasoil from Dubai crude remained below $14 a barrel for a second straight month in July. That is $4-$5 lower than in July last year.

The losses from making a barrel of fuel oil stayed close to $13 a barrel in July for a second consecutive month, versus a loss of about $10 in the same month last year.

Excess refining capacity and abnormally high runs in the second quarter left product markets oversupplied and reduced the need to run at high rates in the third quarter, Morgan Stanley analysts led by Adam Longson said in a note.

A Singapore-based trader said light grades could come also under greater downward pressure as naphtha and gasoline margins dropped sharply late last month, and cargoes of a similar grade, Abu Dhabi’s Murban, were sold at discounts for September.

An overhang of West African grades also weighed on light oil markets.

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.

Reuters data meanwhile showed Brent’s premium to Dubai crude hit the lowest in more than two years as the European marker continued to soften on ample supply, .

Brent-Dubai Exchange of Futures for Swaps (EFS) for September was valued at $1.80 a barrel, down 15 cents from Thursday’s close and the narrowest since June 26, 2012.

A narrow spread encourages Asian refiners to buy more Brent-linked oil from the Atlantic Basin and depresses demand for sour grades priced at differentials to Dubai quotes and sweet crude produced in the Asia-Pacific.