On Sunday, Saudi Arabia announced a significant increase in the official export pricing of multiple varieties of crude oil from multiple regions.
After finalizing the extension of historic production cuts to the end of July, Saudi Arabia announced its official crude oil price for July on Sunday. Selling Price (OSP). Saudi Arabia announced a significant increase in the official export pricing of multiple varieties of crude oil from multiple regions, which to a certain extent increased its efforts to support rising oil prices.
Saudi Aramco will raise the price of all grades of crude oil to Asia in July by US$5.60 to US$7.30;
Saudi Aramco will The price of Arabian Light crude oil in Asia was raised by US$6.10 per barrel, a premium of 20 cents to the benchmark price;
The official selling price to customers in Northwest Europe is higher than the Brent price of the Intercontinental Exchange The price premium of crude oil is US$0.30/barrel;
The official selling price to US customers is US$1.35/barrel premium to Argus sour crude oil.
The official selling price for Saudi Aramco’s flagship light crude exports to Asia rose the most in at least 20 years.
From price reduction to price increase, what is Saudi Arabia considering?
Saudi Arabia’s monthly official selling price has been one of the most watched data in the global crude oil market. According to tradition, Saudi Aramco usually releases its official selling price one month in advance (before the 5th of the previous month).
In March, Saudi Arabia and Russia failed to reach an agreement on production cuts, so in response, Saudi Aramco significantly lowered its official selling price, marking the outbreak of a full-scale price war.
Now, Saudi Arabia has announced a comprehensive price increase. S&P Global Platts survey shows that the July OSP of Saudi Aramco’s Arabian Light crude oil entering the Arab market is even much higher than traders expected. 2-5 US dollars/barrel. In just 3 months, from a significant price reduction to a comprehensive price increase, what is Saudi Arabia considering?
In fact, when we refer to another data, the truth becomes clear.
Official data showed last Sunday that Saudi Arabia’s export revenue in the first quarter of 2020 was 197.74 billion riyals ($52.69 billion), a 20.7% decrease from the same period in 2019, mainly This was due to the total value of oil exports falling by 21.9% year-on-year in the first quarter to US$40 billion, a decrease of approximately US$11 billion.
Saudi Arabia’s budget deficit reached 34.107 billion riyals in the first quarter, and the Saudi Ministry of Finance has announced plans to increase borrowing and use cash reserves to make up for this year’s shortfall.
Crude oil export revenue has plummeted, and Saudi Arabia must find ways to stabilize its finances. In addition to reducing production, raising prices is a more effective and direct method.
At last weekend’s meeting, Saudi Arabia said it would reduce its crude oil production by one million barrels per day in June, exceeding its commitments under the OPEC+ agreement; But it did not say whether it would continue to voluntarily reduce production in July. Although uncertainty still exists, Saudi Arabia’s crude oil production blueprint for June can basically be outlined.
What is the impact of Saudi Arabia’s rare price increase?
It is worth noting that in this price adjustment, Saudi Aramco’s Arabian Light crude oil sales to Asian customers increased by the largest amount in 20 years.
Foreign media pointed out that the OSP increase may weaken buyers’ demand for Saudi crude oil and will force other Gulf oil Producers followed price increases.
According to foreign media reports, this price increase will undoubtedly impact exports to Asia in July, and Asia has always been Saudi Aramco’s largest regional market. However, the rise in Saudi crude oil prices has almost offset all the price discounts made by Saudi Arabia in the price war with Russia.
Today, crude oil supply is tightening, which is helping to repair the crude oil market damaged by the epidemic. However, the profits that refiners make by processing crude oil into fuels have never kept pace with the rise in oil prices. In other words, despite the recovery in oil prices, refinery profit margins are still very thin.
Saudi Arabia’s sharp price increase may exacerbate this problem, which will cause refiners’ import costs to surge. Representatives of European and Asian refineries expressed concern and said the Saudi price increase would reduce profit margins.
In addition, Saudi Arabia’s official selling price has always been a benchmark for pricing by other Gulf oil-producing countries. After Saudi Arabia raises prices, I believe the United Arab Emirates and other countries will follow suit soon. </p