Saudi actions hinting at oil recovery
It is taking advantage of increased demand, after suppliers extended production cuts to curb a global glut.
The State-owned Saudi Arabian Oil Company, better known as Saudi Aramco, increased official pricing for Arab Light crude to Asia by 60c, to 25c a barrel less than the regional benchmark.
The company had been expected to increase the grade’s pricing by 30c a barrel for buyers in its largest market. Aramco boosted pricing due to higher demand and better profits for refiners in the region.
OPEC and partners, including Russia, agreed, last month, to extend production cuts for another nine months to reduce global inventories. Saudi Arabia’s Energy Minister, Khalid Al-Falih, said the cuts, initially meant to last through June, are working and said predicted global inventories will fall to the five-year average in early 2018. But American drillers continue to add rigs to shale fields. Brent crude prices have dropped 12% this year.
“This is an indication that the Saudis see market conditions improving across the board,” said Robin Mills, head of Dubai-based consultancy, Qamar Energy. “Demand is generally weaker in the first-quarter and picks up in summer.”
Saudi Aramco had cut Arab Light pricing to Asia for the past three months, as the kingdom fought to defend sales. It had ceded market share to OPEC rivals, Iran, and Iraq, by making deeper cuts in output than it promised under the group’s agreement to curb production. US pricing by Aramco has increased for three consecutive months.
Saudi Arabia plans to “markedly” reduce exports to the US in the next few weeks to reduce crude inventories in the world’s biggest consumer. The July pricing doesn’t provide “any evidence of that strategy”, given that Aramco raised pricing across several markets, Mr Mills said.
Oil posted its biggest weekly drop in four weeks, last week, amid questions over the effectiveness of OPEC’s deal to help rebalance the market, as US production continues to grow.
- Bloomberg
