By Florence Tan and Muyu Xu

SINGAPORE (Reuters) – Top oil exporter Saudi Arabia may cut prices for crude grades sold to Asia in June after benchmarks slumped from records in the previous month as COVID lockdowns curbed demand in China, the world’s biggest crude importer, traders said on Friday.

Global markets were rattled last month by western sanctions on Russia, the world’s biggest combined crude and oil products exporter, that could curb supplies, pushing Middle East spot premiums and term prices to record highs.

However, COVID-19 restrictions across China cooled demand causing prices to tumble this month. Also, large volumes of Russian oil displaced by European sanctions are still heading to China and India while Japan and South Korea are releasing strategic oil reserves, easing supply concerns.

To reflect these changes, state oil company Saudi Aramco is expected to cut the official selling price (OSP) for flagship Arab Light crude in June by $5-$5.50 a barrel from a record premium of $9.35 a barrel above the average of Platts Dubai and Dubai Mercantile Exchange Oman quotes, a Reuters survey of seven refining sources showed.

The price cuts are because of weak refining margins in China from the COVID lockdowns and a lack of product export quotas that prevent Chinese refiners from shipping out excess fuel, one respondent said.

Another respondent, the only one who is expecting smaller price reductions at $3-$4 a barrel, said he expects strong refining margins to support OSPs.

Asian oil refiners are reaping their highest profits ever this week, spurred by higher fuel demand and fuel exports to Europe to replace the Russian shortfall.

Saudi crude supplies could rise further as OPEC+ is likely to stick to its existing deal and agree another small output increase for June when it meets on May 5, six sources from the producer group told Reuters on Thursday.Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 9 million barrels per day (bpd) of crude bound for Asia.

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.

Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.

Below are expected Saudi prices for June (in $/bbl against the Oman/Dubai average):MAY Change est.JUNE OSP

Arab Extra Light +9.60 -5.50/-4.20 +4.10/+5.40

Arab Light +9.35 -5.60/-4.00 +3.75/+5.35

Arab Medium +9.30 -5.15/-3.60 +4.15/+5.70

Arab Heavy +7.95 -5.95/-3.40 +2.00/+4.55

Source: Reuters, trade

(Reporting by Florence Tan in Singapore and Muyu Xu in Beijing; Editing by Christian Schmollinger)