ADVERTISEMENT

Asian Crude Oil Buyers Shocked by Saudi Arabia’s Price Hike

Saudi Oil Hike Shocks Some Asian Buyers Without Better Options

(Bloomberg) --

Saudi Arabia’s steep hikes to its crude prices for July have shocked some Asian refiners even as the region leads a rebound in global energy consumption following coronavirus lockdowns.

Aramco’s price boost for its flagship Arab Light crude to Asia -- which accounts for more than half of Saudi oil sales -- was the biggest in at least 20 years, exceeding the most bullish expectations in a Bloomberg survey. However, two refiners are still seeking to buy their regular volumes because of the lack of alternative options, while another processor is weighing whether to replace some cargoes from the kingdom with floating storage or arbitrage supplies, according to people familiar with the matter.

Asian Crude Oil Buyers Shocked by Saudi Arabia’s Price Hike

Aramco increased Arab Light by $6.10 a barrel from June, according to a pricing list seen by Bloomberg. Across all of the producer’s grades, Super Light and Extra Light saw the biggest increases, while heavier crudes saw slightly smaller gains. Three refiners are considering their supply options after the move, the people said.

“We were planning to draw full volumes, including optional, for July,” said R. Ramachandran, refineries director at India’s Bharat Petroleum Corp. “We will now have to review after the Saudi prices. Oil markets have become extremely dynamic with all these forward prices, it’s become more an art than science.”

While crude demand across Asia has been on the mend since the easing of lockdowns, particularly in China, the recovery is uneven. Saudi Arabia made the move to increase prices after OPEC+ agreed over the weekend to extend historic production cuts by another month, with the coalition demanding better compliance from laggards including Iraq and Nigeria.

Iraq has already sent out a query to several customers on their willingness to reduce June-July volumes, according to people who received the requests, asking not to be identified due to company policy. The second-biggest producer in OPEC sells two grades of Basrah crude with comparable quality to Saudi Arabia’s medium-heavy varieties.

Middle Eastern sellers such as Abu Dhabi’s Adnoc, Iraq’s SOMO and Kuwait’s KPC are set to announce their official selling prices in the coming days. Gulf producers tend to adjust their OSPs in line with each other, which means Asian refiners seeking to back out of Saudi oil in favor of alternatives could be out of luck.

Traders aren’t actively offering spot cargoes at the moment, adding to the challenge for refiners, Ramachandran said. The traders are waiting for prices to rise further, he added.

©2020 Bloomberg L.P.

With assistance from Bloomberg