June 08, 2020 / 03:40 PM / by Irina Slav of Oilprice.com /
Header Image Credit: Oilprice
Saudi Arabia sharply raised its official selling prices for crude oil, removing almost completely the deep discounts it had in place to preserve its market share during the price war it waged on Russia in March.
Bloomberg cites a pricing list of Aramco, which reveals the target of the price hikes will be Asia: the Saudis' largest export market. The list, according to the report, reveals the sharpest price hike in at least twenty years, which in turn followed the sharpest cut in prices in 30 years.
The hike comes on the heels of an agreement with Saudi Arabia's OPEC+ partners to extend the deep production cuts they agreed in April until the end of July. The hike expectedly resulted in a rise in benchmarks that brought Brent crude above $40, to $43.17 a barrel at the time of writing, and West Texas Intermediate to $40.15 a barrel at the time of writing.
However, Asian oil buyers have likely gotten used to cheap oil. They have also likely filled their storage facilities during the crisis, especially in China. This might mean that orders for Saudi oil further down the road may decline. And it's just not out of love for cheap oil. Asian refiners are fighting slimming margins as Chinese teapots add hundreds of thousands of new refining capacity to an already oversupplied market. For them, low prices are a necessity rather than a preference.
And yet, now that Saudi Arabia has hiked its official selling prices, other Gulf producers might do the same, Bloomberg's Anthony Di Paola notes. This has already raised concern among not just Asian but also European refiners, Di Paola said. It was to be expected, as the refining industry has been battered no less than the upstream, if not worse, with air traffic almost grinding to a halt and road transport severely restricted because of the lockdowns.