Saudi Arabia Expected to Cut August Oil Prices for Asia to a Four-Month Low as Hormuz Reopens and Demand Wanes

Saudi Arabia is widely expected to slash its August 2026 official selling prices (OSPs) for Asian buyers to a four-month low, as a confluence of supply-side relief and demand-side weakness has crushed Middle East crude benchmarks. The three dominant drivers are the reopening of the Strait of Hormuz, a sharp market shift into contango, and deteriorating demand from Asian refiners.

Strait of Hormuz reopening releases a wave of stranded supply

The Strait of Hormuz was effectively closed from late February 2026 after U.S.-Israel attacks on Iran, triggering a major oil supply crisis . In mid-June, a U.S.-Iran interim agreement to reopen the waterway was announced, immediately depressing oil prices to their lowest since early March . The reopening is expected to release millions of barrels of crude that had been stranded in the Persian Gulf, flooding a market already wary of oversupply . Ship traffic through the strait could return to nearly half of prewar levels within a month . Saudi Arabia has also boosted its own crude exports, and the combination of resumed Hormuz transit and increased Saudi supply has sharply reduced the geopolitical risk premium, driving international benchmarks like WTI and Brent to four-month lows .

Oil market flips to contango, signaling a near-term glut

The surge in expected supply has pushed the oil futures curve into contango — where prompt prices trade below later-dated contracts — for the first time since before the Hormuz closure . This structure signals that traders expect ample supply in the near term and are willing to pay more for deferred delivery. Analysts describe a "short-term glut" as Middle East exports jump, with prompt contango widening as the market prices in the incoming wave of crude . Contango typically incentivizes floating storage and discourages spot buying, adding further downward pressure on physical crude prices and the OSPs that Saudi Aramco sets against them.

Asian refiners face weakening demand and full inventories

Asian crude demand — the primary outlet for Saudi barrels — is under strain on multiple fronts:

• Full inventories: Asian refiners scrambled to replace lost Middle Eastern flows during the Hormuz closure and are now well-supplied for June and July, leaving them with little appetite for additional August cargoes .
• Reduced processing rates: Many Asian refiners cut processing rates during the crisis because of high feedstock prices, and demand recovery has been sluggish .
• Weak Chinese buying: China's independent "teapot" refiners, once marginal buyers absorbing extra barrels, have pulled back sharply. Analysts note they are "no longer acting like marginal buyers scrambling for supply," meaning Middle Eastern grades must become more competitive to attract buying interest .
• EIA demand downgrades: The U.S. Energy Information Administration reduced its global oil demand growth forecasts for 2026, with the largest reductions assumed in Asia, which is most reliant on Middle East crude .

The Saudi pricing response

Saudi Aramco had already cut July OSPs for Asia amid weakening demand and narrowing spot premiums . The August OSPs are expected to follow with an even steeper cut as the combination of Hormuz-related supply relief, the contango structure, and soft Asian demand has crashed the Middle East crude benchmarks that Aramco uses to set its pricing . Refiners polled by Reuters expect the flagship Arab Light OSP to be slashed by between $6.50 and $8.00 per barrel, which would bring it to a four-month low .