S&P - Most buyers of Saudi Arabian and Iraqi crude in Asia will receive lower July volumes following the extension of the OPEC+ production cut agreement earlier this month, industry sources say.

July crude allocations from Saudi Arabia and Iraq are largely finalized, with several refiners in the region reporting that Saudi Arabia's state oil giant Aramco and Iraq's State Oil Marketing Organization have made cuts to the allocated volumes they had requested for July nominations.

The cuts followed the one-month extension of the deeper production cut of 9.6 million b/d by the OPEC+ alliance to July, following commitments from Iraq, Nigeria, Angola and Kazakhstan.

The extent of the allocation cuts, however, varies from buyer to buyer, with some receiving cuts of up to 20% to their contractual levels for Saudi crude and up to 50% for Iraqi.

Traders said Asian buyers had received 30%-50% cuts to their contractual volumes from SOMO for July-loading cargoes.

"The SOMO allocation cut [for July] is a little more than last month [for June loading]," a crude trader with a North Asian refiner said. "[We received] a little more than last month around 30%," the trader added.

On Saudi crude, some traders said that lower allocations were given for the medium-to-heavier crude grades, while little to no cuts were heard for Arab Extra Light.

"We have received 20% cut for Arab Light but no cuts for Arab Extra Light," a crude trader with a Southeast Asian refiner said, adding that cuts were heard made to Arab Medium and Arab Heavy grades.

Similarly, a source at China's Norinco Huajin said the refinery would take 1 million barrels of Arab Extra Light for July delivery as planned.

The source said the refiner had yet to receive any notice of a reduction in volume but could expect a slightly lower volume of around 900,000 barrels maximum if the cuts were widely applied to refineries in China.

Higher OSPs limit buying appetite

Higher official selling prices set by the Middle East producers might also have curbed Asian refiners' appetite, causing them to nominate less than their contractual volumes, traders said.

Saudi Aramco raised the OSP differential of its crude heading for Asia in July by $5.60-$7.30/b from the June OSP. It sets the price differential of Asia-bound Arab Light crude at plus 20 cents/b against the average of the Dubai and Oman benchmarks over July, up by $6.10/b from the June price and higher than the $2-$5/b increase that traders had expected, according to an S&P Global Platts survey.

Similarly, SOMO has raised the OSP differential of its Basrah Light crude heading east in July to a premium of $1.25/b to the mean of Platts Oman/Dubai assessments, an increase of $5.80/b month on month. The OSP differential of Asia-bound Basrah Heavy was set at 60 cents/b below the benchmark, up $5.60/b from June.

"The significant increase in OSPs [has] dampened buying interest too," a Beijing-based source with Unipec said.

The source added that while there was a cut in Aramco's allocation to China for July-loading, Chinese buyers lifted relatively higher volumes over April-June when prices were lower.

One refinery source from Sinopec said they had received their full nomination for July of 5 million barrels, without specifying the grades, which was already less than their June nominations.

A second refinery source with Sinopec said they would not lift any crude from Saudi Arabia in July, and had booked either Abu Dhabi's Upper Zakum of Kuwait Export Crude as replacement. In June, they lifted 60,000 mt of Arab crudes.

"The allocation cuts [we received from Saudi] were only a bit -- less than 20% based on contractual volume. [But we] nominated less for the heavier grades, so [we] got all [the volume nominated]," a crude trader with a North Asian refiner said.

Cargo count falling

The shipping market is closely watching loading demand for July after a significant drop in demand for the June cycle due to the deep OPEC+ cuts.

"Saudi stem confirmation was delayed and maybe the [steady] market could continue for a while," a shipbroker said.

The cargo count out of the Persian Gulf has fallen by 20% since May 1, with April registering 160 fixtures and May 128. However for the June loading cycle, the cargo count was just 98, according to brokers' calculations.

"Rates should slowly come off, but the huge imports by China [which are] causing vessels delays have kept rates steady for now," a second broker said.