In a sign that demand continues to rise and oil markets are moving closer to balance, Saudi Arabia increased its prices for crude heading to Asia and the United States.
Saudi Aramco hiked prices on Arab Light destined for Asia for the second month in a row, according to Bloomberg, the first time that has occurred in more than a year. Aramco increased Arab Light prices by 35 cents per barrel, trading at a 60-cent premium to the regional benchmark. Saudi Arabia's pricing strategy tends to move the market, as other Middle East oil exporters usually adjust prices following Saudi actions. Related: Eagle Ford Halts Decline As Texas Oil Production Spikes
India has emerged as one of the largest drivers of oil demand growth, surpassing China in terms of the pace of growth. China, despite a somewhat slowing rate of demand, still has a large degree of influence over global demand. The prices increases are a sign that Saudi Aramco is "getting more bullish on demand," according to Robin Mills of the Brookings Institution in Doha, who spoke with Bloomberg by phone. Related: Colombian Oil Patch Needs $70 Billion To Survive
While Saudi Arabia is hiking prices to Asia and the U.S., it also cut prices on June 5 for oil heading to Europe. Aramco slashed prices by 35 cents per barrel to northwest Europe and by 10 cents per barrel for oil destined for the Mediterranean.
On its face, the price reduction might suggest that the markets are still well supplied. Indeed Europe is well supplied, but much of that has to do with the intense competition for customers between Saudi Arabia and Iran. Following the removal of sanctions and Iran's success at ramping up production since the start of the year, Europe has become a hotly contested area for the two OPEC rivals. Iran used to export more than 1 million barrels per day to Europe and is now fighting to reclaim some of that lost market share. The WSJ reports that Iran's oil exports to Europe have climbed to 400,000 barrels per day, and after securing deals with refiners in Greece, Italy and France, exports should rise to 700,000 barrels per day in the next few months.
That stiff competition has Saudi Arabia cutting prices to hold onto its market. Aramco exports 800,000 barrels per day to Europe.
By Charles Kennedy of Oilprice.com
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Comments
a. Let's build refining ability at home so we can reduce the amount we are importing
b. Let's undercut Aramco in Asia where Aramco has increased rates
c. Let's figure out how to triangulate Saudi Arabia and Russia into a cost-cutting war in Europe