Saudi Arabia hikes crude oil prices surprisingly high for Asia buyers in July IG News

Saudi Arabia, the world’s top oil exporter, raised July crude prices to higher-than-expected levels for Asian buyers amid tight supplies and expectations of strong demand in the summer, Reuters reported.

The official selling price (OSP) for July-loading Arab Light to Asia rose from $2.1 a barrel in June to $6.5 a barrel on Oman/Dubai quotes, just off the highs recorded in May.

This was significantly higher than most of the market’s forecast for an increase of about $1.5. Only one in six respondents in a Reuters poll predicted a $2 jump.

“The price jump is unexpected, especially Arab Light. We are shocked by the decision,” said an Asian oil trader.

The increase by kingdom oil producer Saudi Aramco came despite a deal by OPEC+ states to 648,000 barrels per day (bpd) in July and a similar amount in August in an effort to offset Russian supply deficits. This compares with the initial plan to add 432,000 bpd a month in the three months to September.

But the increase has been divided among member states including Russia, and states such as Angola and Nigeria, which struggle to meet their targets, sparking fears that the actual increase in supply could fall short of official plans.

Countries in the Northern Hemisphere, such as the United States, typically kick off their driving season in July, increasing demand for gasoline. China, the world’s No. 1 oil importer, is also reopening some cities like Shanghai after a long COVID-19 lockdown.

“Demand is also very strong in this cycle and Saudi can afford to increase the OSP,” said another Asian oil trader.

Some of the Saudi oil demand may be met by the continued influx of Russian oil into China and India, who have refused to condemn Moscow for the invasion of Ukraine and are accelerating purchases of Russian cargo at bargain prices. Huh.

Moscow says it is conducting a “special military operation” to disarm Ukraine and protect it from fascists. Ukraine and the West reject Russia’s claims on the pretext of aggression.

Saudi Aramco on Sunday night also increased its OSP for European and Mediterranean buyers, but kept the US gap unchanged.