The tentative reopening in China and strong Asian refining margins could prompt Saudi Arabia to raise the official selling prices of all the crude grades it will be selling in July in its key market, Asia, six refining sources told Reuters in a survey on Monday.
Saudi Aramco, the oil giant of the world's top crude oil exporter, generally sets the pricing trends of the other major Middle Eastern oil producers, and it usually sets the OSPs of its crude for the following month around the fifth of each month, typically after the monthly OPEC+ meeting.
For July, the Kingdom is expected to raise its OSPs for its flagship Arab Light crude grade to Asia by between $0.85 and $2.00 per barrel over the Oman/Dubai benchmark, off which Middle Eastern crude is priced in Asia, according to the Reuters survey.
All other grades are also expected to see a rise in prices for Asia in July, the respondents in the survey said.
Saudi Arabia's prices are expected to increase due to record-high refining margins in Asia amid a global crunch in fuels, and as fuel demand is expected to strengthen in Asia after Shanghai announced a tentative gradual reopening after June 1.
Moreover, the OPEC+ group is widely expected to keep its production plan unchanged when it meets on June 2, despite calls from oil importers for more supply to the market. OPEC+ is expected to rubberstamp this week its moderate monthly increases in oil production when it decides output levels for July, six sources at OPEC+ told Reuters last week.
The expected rise in Saudi OSPs for July would come after prices for June were lowered, in light of the Chinese lockdowns and a general easing of the crude oil futures curve. The Saudis cut the June prices for Asia from record high premiums to regional benchmarks in May.
By Tsvetana Paraskova for Oilprice.com
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Comments
In such circumstances, Saudi Arabia should refrain from raising its crude prices in its key market, Asia, as a concession to these countries for the rising costs of living and also as an expression of understanding the difficult conditions Asian people are suffering as a result of rising energy prices.
There is also one other important reason why Saudi Arabia should refrain from raising its prices this time. A Brent crude at $120 is at the top end of what the global economy can tolerate. Beyond that an oil demand destruction reminiscent of the financial crisis of 2008 and the 2014 price collapse would start to spread.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London