Just days after the OPEC+ meeting, Saudi Arabia has made another move.
Saudi Arabia has raised the price of Crude Oil shipped to Asia and the U.S. next month, signaling a tightening spot market. Saudi Aramco raised the price of Arabian Light crude for Asia by 40 cents to $1.40 a barrel above the benchmark price. Asia is Saudi Arabia’s largest oil export market. A Bloomberg survey of traders and refiners showed that Saudi Aramco had been widely expected to keep crude export selling prices unchanged before OPEC+ announced last week that it would not increase production.
The premium for Arabian light crude rose to its highest level since March 2020 after holding prices to Asia at an eight-month high for the past two months. Saudi Aramco raised prices for all grades of crude oil to Asia except Arabian heavy crude.
In addition to Asia, Saudi Arabia also raised the selling price of crude oil shipped to the United States. This indicates that Saudi Arabia is not concerned that U.S. shale oil producers will take advantage of the current high oil prices to significantly increase production, so it is boldly raising its selling prices.
In addition to Asia and the U.S., Saudi Arabia’s crude oil exports to Europe and the Mediterranean have seen price cuts, in an effort to keep Russia from stealing too much market share. Saudi Aramco lowered the pricing of its oil exports to Europe, mainly to follow the price of Russia’s Urals crude. Russia wants to increase production to stop U.S. producers from increasing output and taking market share.
In addition, Saudi Aramco cut the price of crude oil shipped to the Mediterranean region, also benchmarking the price of Urals crude sold from Russia to the Mediterranean region. The Saudi oil minister warned producers to be cautious in the face of the ongoing fresh crown outbreak.
Saudi Aramco cut the price of its light crude sold from Egypt’s Mediterranean port of Sidi Kerir by $1.70 a barrel, $1.90 below the benchmark price. The company cut the price of mid-grade crude by $1.70 per barrel and heavy oil by $1.90 per barrel.
This increase in Saudi Arabia’s oil selling price in Asia may be an attempt to cool down Asia’s hot oil demand. As the world’s largest crude oil importer, China’s demand plays a key role in driving up oil prices.
Mike Muller, head of Asia at Vitol Group, the world’s largest independent trader, said China is the biggest crude importer and demand is definitely still higher than last year. Global oil demand has further opportunities to grow as demand growth prospects include pent-up summer travel demand, he said Sunday at an online discussion hosted by consultancy Gulf Intelligence.
With supply continuing to tighten, this is bound to cause oil prices to continue to soar. And for Saudi Arabia, oil prices are rising too fast for its own good. Although U.S. shale oil producers have increased their tolerance for high oil prices (in the past, when oil prices rose to $60 per barrel, U.S. producers became impatient to increase production), but when oil prices rise to the point that U.S. producers can both significantly increase production and meet the interests of shareholders, they will still not hesitate to increase production.
Thus, this Saudi crude oil price hike in Asia is primarily intended to curb what is currently the world’s most robust source of demand and keep oil prices at current levels, or at least rising moderately, rather than soaring as they have recently.
It is worth noting that Saudi pricing decisions typically set the tone for other Middle East crude suppliers, including Iraq and the United Arab Emirates, which are OPEC’s second and third largest producers, respectively, and investors will need to watch for them to follow suit with similar price hikes.
Recent Comments