Saudi Aramco raised the official selling prices of its light crude for Asian clients for the first time in three months, with the September price for flagship Arab Light up by $0.20 per barrel for September delivery. Aramco kept Arab Medium and Arab Heavy crude prices unchanged for Asian buyers.
With the hike, Arab Light will cost $2 per barrel over the Oman/Dubai average next month for Asian buyers, although the increase was smaller than the amount analysts expected, which was 50%. The September price for the flagship blend will be the highest in two months.
The move is significant because of recent economic reports from China that, according to media and analysts, signal weakening oil demand growth. Such an environment is not the most conducive to price hikes. However, the fact that Aramco is hiking prices suggests that those reports either do not represent the whole Chinese picture or there is stronger demand elsewhere in Asia.
At the same time, Aramco reduced the prices of its crude for other export destinations, including Europe and the United States, signaling weak demand there. Discounts for European destinations were the greatest, at 2.75%, while prices for oil sent to the U.S. were cut by 0.75%.
Chinese oil demand has been one of the biggest factors driving oil price movements lately, mostly determining a generally pessimistic mood on the market due to disappointing economic indicators and weaker oil import growth.
As noted, Aramco's move to hike prices for Asian buyers for the first time after three monthly price cuts may change some of that mood for a while, even though it comes days after reports that Chinese diesel consumption was in decline, suggesting weaker overall demand for fuels. The slump in diesel demand came on the back of growth in the use of LNG-powered trucks.
Yet China's demand for fuels is also slowing because of a weaker manufacturing sector, with its "its 'export-led' growth model … no longer tenable," according to Kpler principal middle distillates analyst Zameer Yusof.
This makes Aramco's move to raise prices even more significant as a signal it believes Chinese demand remains strong despite the data that suggests the opposite.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More