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Asian oil buyers will likely purchase more U.S. and Middle Eastern crude on the spot market and may take less contracted supplies from Saudi Arabia after the kingdom hiked its prices to a record.
Omani crude was selling for $4 to $4.50 a barrel above its benchmark price on the Dubai Mercantile Exchange this week. That compares with the official selling price for Arab Light, which is now at a $9.35 premium to an average of Oman and Dubai prices. Long-haul flows from the U.S. have also become more viable following the announcement of the strategic reserves release.
The cost advantages mean many Saudi Aramco customers are unlikely to seek extra term supplies and may even opt to reduce volumes, while buying more from the spot market, according to traders. At least three Asian refiners said they were nominating regular volumes from Aramco this month, a change from a few weeks ago when some were requesting additional crude.
Crude has become cheaper on the spot market after the U.S. said it would drip-feed 1 million barrels a day of oil into the market for around six months. A cloudier demand outlook due to China’s worsening Covid-19 outbreaks, as well as continued flows of Russian crude to Asia, have also pushed down premiums for Middle Eastern oil, making it more attractive than Saudi term supplies.
Aramco customers had urged the oil giant to try and keep a lid on price rises given the reserves release and the weaker Chinese demand, and were disappointed at the magnitude of the increase announced on Monday, the traders said. The buyers have to submit monthly nominations, requests for how much crude they want, to the Saudis by the end of Tuesday.
