Saudi Arabian government hikes July crude prices surprisingly high for Asia buyers

Saudi Arabia, the world’s largest oil exporter, hiked July crude oil prices for Asian clients to higher-than-expected levels, citing constrained supply and anticipation of high demand this summer. The official selling price (OSP) for July-loading Arab Light to Asia increased by $2.1 a barrel from June to $6.5 a barrel over Oman/Dubai quotations, narrowly missing an all-time high set in May.

This was far greater than most market predictions of a $1.5% growth. In a Reuters poll, only one out of six respondents projected a $2 increase. ‘The price jump is unexpected, especially the Arab Light. We are puzzled by the decision’, an Asian oil trader said.

Despite an agreement by OPEC+ members to increase output by 648,000 barrels per day (bpd) in July and a comparable amount in August to cover Russian supply losses, Saudi Aramco (2222.SE) increased its output. In comparison, an original plan was for adding 432,000 bpd each month for three months until September.

However, the increases have been distributed across member nations, including Russia and those like Angola and Nigeria, who are struggling to fulfil their commitments, raising concerns that the real supply rise would fall short of official expectations.

Countries in the northern hemisphere, such as the United States, often begin their driving seasons in July, causing gasoline consumption to skyrocket. After extended COVID-19 lockdowns, China, the world’s largest oil importer, is also reopening some cities, including Shanghai. ‘Demand is also very strong in this cycle and Saudi can afford to hike OSPs’, said another Asian oil trader.

Some Saudi oil demand may be stifled by ongoing Russian oil exports to China and India, who have declined to criticise Moscow for its invasion of Ukraine and have been ramping up purchases of Russian cargos at discount rates. Moscow claims to be conducting a ‘special military operation’ in Ukraine to disarm the country and defend it from Nazis. Russia’s assertions are dismissed by Ukraine and Western countries as a justification to invade.

Saudi Aramco increased its OSP for European and Mediterranean purchasers on Sunday night but left U.S. differentials intact.