Saudi Arabia raised its September official selling prices for crude oil by between $0.20 and $0.30 per barrel for Asian buyers to a four-month high. This time, however, their move could backfire, writes Bloomberg.
The largest oil producer in OPEC regularly hikes prices for its biggest market when international benchmarks improve and demand grows. But a resurgence of the coronavirus in China will likely affect local oil buyers' appetite.
What's more, as Bloomberg notes, there are now more competitive alternatives to Saudi Arabia's Arab Medium and Heavy, whose prices the Kingdom raised. For instance, U.S. producers of medium heavy are selling their oil at lower prices than last month's. And Russian oil companies are discounting their Urals grade, according to traders.
In addition to these competitive barrels from the United States and Russia, the availability of prompt oil cargos has gone up as OPEC+ begins to add more barrels to its combined production per its latest adjustments. The cartel will be adding 400,000 bpd beginning this month and ending late next year when it returned to pre-pandemic production levels.
China's intake of Saudi oil is already on the decline, according to the latest data. In June, the world's largest oil importer took in 1.75 million bpd of Saudi oil-an amount that was 19 percent lower than what they took a year earlier. Nevertheless, the Kingdom remained China's biggest supplier in June. But with the latest price hike, this could change, especially now that China's oil demand is expected to be diminished by the resurgence of Covid-19 in the country.
India would also likely seek alternatives. Earlier this year, the country ordered its state refiners to reduce their orders for Saudi oil after the Saudis hiked prices for April shipments of crude. Again, Indian refiners turned to alternative suppliers.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More