Bigger-than-expected Saudi crude price hikes to Asia are bullish for markets

A view shows branded oil tanks at the Saudi Aramco oil facility in Abqaiq, Saudi Arabia, October 12, 2019. REUTERS / Maxim Shemetov

  • Saudi Arab Light differential more than doubled in December vs November
  • Strong Naphtha, Gasoline Margins Drive Light Crude Prices

SINGAPORE, Nov. 8 (Reuters) – Saudi Arabia, the top oil exporter, more than doubled the price differential of its flagship crude relative to Asia in December compared to November, exceeding market expectations and sending a bullish signal to the global oil market, traders said.

The sharper-than-expected price hike comes after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC +, agreed last week to maintain a production increase of 400,000 barrels per day (bpd) for December despite calls from higher yielding consumers. Read more

On Saturday, state-owned oil giant Saudi Aramco raised the official selling price (OSP) of Arab Light crude from $ 1.40 to $ 2.70 per barrel above the average Platts Dubai and DME Oman price in December, its highest level since September. Read more

This far exceeds a 30 to 90 cent per barrel hike forecast for Arab Light in a Reuters investigation on Oct. 29. read more

Brent and US West Texas Intermediate crude futures gained more than $ 1 on Monday following Saudi Arabia’s announcement. Brent has risen about 60% year-to-date as global demand for oil recovers from the pandemic. Read more

“It just tells you that the Saudis are very bullish and they also think the market is very tight and that is why they are so daring to raise prices,” said a Singapore-based trader.

The trader said the producer likely based its pricing calculations on Asia’s refining margins, which surged in October following large gains in gasoline and naphtha.

OSPs for the lighter grades – Arab Super Light and Arab Extra Light, which produce more of these two products – rose more than $ 2 a barrel in December.

Saudi Aramco has also increased OSPs for heavier grades over $ 1 a barrel despite lower fuel margins. These prices will determine the trend for other medium and heavy grades from Kuwait, Iraq and Iran.

Price hikes have made Saudi crude, especially heavier ones, “very expensive,” several buyers told Reuters.

Saudi Aramco has a policy of not commenting on prices.

The price hikes come even as producers in the Middle East ramp up production, as previously agreed in a pact to increase production from August.

Saudi oil production will exceed 10 million barrels per day in December, for the first time since the coronavirus pandemic, Saudi channel Al Arabiya announced Thursday.

Middle Eastern benchmarks surged last week after Brent’s premium over Dubai quotes hit its highest level since 2013. This made crude tied to Atlantic Basin and America Brent Latin more expensive than those in the Middle East and Russia. Read more

Reporting by Florence Tan; Editing by Tom Hogue

Our Standards: The Thomson Reuters Trust Principles.

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