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Saudi Arabia raised pricing for oil customers in Asia and the U.S. after its shock move this week to cut output sent crude prices climbing.
A day after its unilateral decision to slash oil production by 1 million barrels a day next month and in March, the kingdom opted to increase prices for all grades shipped to the two regions in February.
State producer Saudi Aramco raised its flagship Arab Light oil to Asia, its biggest market, to $1 above the benchmark, the highest level since August. The increase of 70 cents from January’s shipments was more than the market had expected. The median estimate was for a hike of 40 cents, according to a Bloomberg survey of five traders in late December.
Aramco lowered prices for the northwest European and Mediterranean regions, where energy demand has been hit by new coronavirus lockdowns over the past month.
It’s the second straight monthly increase for oil that the world’s biggest exporter sells to its main market. Some Asian nations have experienced higher energy demand in recent weeks, thanks in part to a cold winter.
Saudi Caution
The Saudis’ slashing of output, announced at an OPEC+ meeting, is set to further restrict the flow of barrels to Asia and has already spurred higher crude prices. Brent crude has gained more than 5% in the past two days to almost $54 a barrel, its highest level since February.
The Organization of Petroleum Exporting Countries and its allies such as Russia were split at the meeting. Moscow proposed the group move ahead with plans to add 500,000 barrels a day back to markets next month, while Riyadh and most other members were more cautious, pointing to the rising number of infections globally.
Ultimately, Russia and Kazakhstan were allowed small increases in production, while all others aside from Saudi Arabia will hold theirs steady.
The development and roll-out of vaccines to counter the virus have helped crude prices rally by about 25% over the past two months, sparking Russia’s desire for higher output. Still, the Saudis and other Gulf producers cited persistent concerns demand could weaken in the short term amid the lockdowns.
Even with the output reductions, the kingdom will pump about 8.12 million barrels a day in February and March, more than twice the level of Iraq, the group’s second-largest producer.
Saudi Arabia’s pricing decision usually sets the tone for other Middle Eastern suppliers, including Iraq and the United Arab Emirates.
