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Saudi Arabia’s boost to prices of most of its oil is signaling an end to a destructive price war, but it’s left Asian buyers less than impressed.
The increase was a surprise to Asian customers, which were expecting another cut to prices, according to ten traders surveyed by Bloomberg, just as pockets of demand start to emerge across the region including from the biggest consumer — China. Buyers were left disappointed when the kingdom hiked the cost of its crude for four of the five grades sold to Asia, prompting some to consider purchasing slightly less from OPEC’s top exporter, traders said.
Buyers will be informing Aramco of their requests such as import volumes, grades, loading dates — a process known as nomination — by Friday. Saudi Arabia raised the official price of its flagship Arab Light crude to Asia by $1.40 a barrel for June from May. That compares with an expected cut of as much as $7.50 in a Bloomberg survey last week.
Across the region, oil demand remains some way from pre-virus levels even as consumption in some countries may have bottomed out. In China, Asia’s biggest crude importer, processing rates led by independents refiners rebounded as more motorists took to the streets and factories resumed operations. India’s fuel use is also seeing a slight gain this month.
Most prediction models had pointed to a month-on-month drop, as opposed to a gain, according to the surveyed traders. This indicates that the kingdom may be referencing other indicators or adjusting its prices based on the nation’s overall strategy, making such models less reliable, four of the traders said.
Saudi Arabia, OPEC’s de-facto leader, entered into an agreement to cut a almost 10 million barrels a day of crude with producers within the group and allies such as Russia. The historic deal will trim a 10th of global output in an effort to stem a price rout that saw U.S. futures fall below zero, while storage capacity struggles to contain the growing glut.
