Amid heightened worry about the course of the pandemic after the emergence of the Omicron variant, Saudi Arabia injected a dose of confidence in markets by raising its official selling price for its flagship Arab Light to a nearly two-year high.
Arab Light will next month sell for $0.60 more per barrel than it does this month for buyers in Asia, Bloomberg reported. That’s $3.30 per barrel more than the Oman/Dubai benchmark. The report added that this is the highest price for Arab Lights since early 2020—the months before the pandemic struck.
The price for Saudi crude sold to the United States is also going up, by between $0.40 and $0.60 per barrel, depending on the grade. Prices for the European market, which is a small one for Saudi oil, will be cut.
Reuters quoted traders as saying the price hikes were not unexpected, although one of the commentators said Arab Heavy was becoming expensive.
The price hike suggests expectations of strong demand, which in turn would imply that Saudi Arabia is not all that worried about the Omicron variant that caused a more than $10 plunge in oil prices in late November, with Brent at one point dipping below $70 per barrel.
Indeed, Aramco’s CEO Amin Nasser said last month that he was “very optimistic” about oil demand, according to Bloomberg, adding that the market had overreacted to the news of a new coronavirus variant.
Since then, however, updates about the new variant appear to be cautiously optimistic, as no deaths from it have been reported yet despite a quick spread, and hospitalization rates are also not jumping as with previous variants.
Meanwhile, Saudi Arabia and its partners in OPEC+ last week agreed to add another 400,000 bpd to their combined output in January despite their stated concern about a glut forming in the first quarter of next year. Oil rose on the news as traders had already considered the possibility that OPEC+ will continue with the output additions.
By Irina Slav for Oilprice.com
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The global oil market only needs a confirmation from the World Health Organization (WHO) that Omicron is less dangerous than the previous variants to see oil prices recouping their recent losses and resuming their surge with Brent crude hitting $85 a barrel before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London