Saudi Arabia’s oil giant Aramco raised the price for all its crude oil grades to all regions for June in a move that analysts see as the start of demand recovery—and this move sent oil prices jumping early on Thursday after the price announcement.
Saudi Arabia’s flagship Arab Light crude grade will be sold in Asia in June at a $5.90 a barrel discount to the Oman/Dubai average. This is a rise in prices by $1.40 a barrel from May, Reuters reported on Thursday, citing a document with the Saudi official selling prices (OSPs) for June it has seen.
For May, the Saudis had set last month the Arab Light price to Asia at a deep $7.30 a barrel discount to the Oman/Dubai benchmark average.
According to a Reuters survey, Asian refiners had not expected the increase in Saudi prices today—they were predicting that the Kingdom would cut the price of its oil again.
Last month, Aramco had announced deeper discounts for customers in Asia for May, for the second month in a row, despite the historic OPEC+ production cut deal.
Saudi Arabia began to deeply discount its oil two months ago, after OPEC’s top producer and its partner in the OPEC+ pact, Russia, broke up the production cut deal and the Saudis waged a price war for market share.
Today’s increase in the price for Saudi crude for June – which generally sets the trend for the pricing for Asia of other Gulf producers such as Kuwait, Iraq, and Iran – was interpreted as a sign that oil demand may have started to pick up.
“The higher prices by Aramco suggest a recovery of demand and a hint that OPEC+ actually started to cut production in their aim to balance the market,” Hans van Cleef, senior energy economist at ABN Amro, told Bloomberg.
By Tsvetana Paraskova for Oilprice.com
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This is manifested by the fact that China’s average daily crude oil imports for the first four months of 2020 stood at 10.11 million barrels a day (mbd) which was even slightly higher than the same period of 2019 as refiners ramped up run rates in response to the pickup in industrial activity after the end of lockdowns. Moreover, the country’s overall exports posted an improvement from March at 3.5% despite analyst expectations that they would slump by as much as 15.7%. This strongly suggests that a recovery is underway, and it may accelerate in the coming months.
With the gradual easing of the global lockdown coupled with OPEC+ production cuts and the China factor, global oil demand will start to accelerate and the glut in the market will start to decline with oil prices hitting $40-$50 a barrel in the second half of this year and touching $60 early 2021.
Still, it may take to the end of 2021 before global oil demand returns to 2019 level.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London