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Just days after the unexpected OPEC+ oil production cut, Saudi Aramco, the Saudi state-owned oil company, has raised prices of crude to Asia by 30 cents per barrel.
The price hike in Aramco’s flagship Arab Light crude to Asia for May delivery represents the monthly increase in a row, Bloomberg reports.
The move to increase the May OSP was not unexpected, though prior to the surprise OPEC+ announcement traders surveyed by Bloomberg had expected Arab Light prices to fall by 43 cents per barrel.
Earlier this week, analysts speculated that Aramco could potentially hike May crude prices to Asia by 20 cents per barrel, to $2.7 per barrel, based on a Reuters survey of Asian refiners.
Already tight supply will now be further squeezed with the additional 1.6 million bpd cut. This, in turn, will increase the upward momentum for Middle East medium and sour grades, which are closing that gap with light grades, Reuters reports.
The benchmarks major GCC producers use to price their crude bound for Asia have soared, narrowing the gap with the price of Brent Crude in the past couple of days. Analysts are not discounting the possibility for Dubai crude to entertain a premium to Brent in the coming months, with China’s economic recovery. PetroChina is forecasting a 3% rise in refined fuel demand this year, from 2019, while other state-sponsored Chinese analysts are eyeing a 7.8% increase in oil refinery throughput, Reuters reports.
While Wednesday’s OSP increase was anticipated in light of the OPEC+ output cuts, the first in the three consecutive hikes that came in February took the market by surprise. The February hike for March OSP of 20 cents per barrel (to a premium of $2 a barrel over the Dubai/Oman average) was the first increase in six months and was primarily based on Chinese demand expectations.
The May OSP price increase further solidifies analysis that the Saudis view coming Chinese demand as particularly robust.
Saudi Aramco sells some 60% of its oil to Asia.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com