Saudi Arabia raises all July crude prices after surprise output cut

SAUDI Arabia will raise oil prices in July after a surprise plan to unilaterally slash output takes more barrels from the largest crude exporter out of circulation in an effort to bolster the market.

The leader of the Organization of Petroleum Exporting Countries (Opec+) announced after a weekend meeting of the producers’ group that it will slash output by 1 million barrels a day next month, on top of production cuts already in place. Members of Opec+, a broader group that also includes partners like Russia, agreed on Sunday (Jun 4) to keep previous reductions in place through next year.

Government-owned Saudi Aramco will raise the price for Arab Light crude for sale to Asia by 45 US cents a barrel to US$3 above the regional benchmark. The producer was expected to lower pricing by about 60 US cents a barrel to 65 US cents, according to a survey of buyers in Asia which was done before the Opec meeting. Traders on Monday said they were expecting a smaller decrease after the Saudi move but none signalled an increase.

The company also applied 45 US cents-a-barrel increases to pricing on all of its other crude grades to Asia, the market which is the biggest buyer of Saudi oil. Prices to the US and to Northwest Europe will all rise by 90 US cents a barrel, while buyers in the Mediterranean region will see a 60 US cents-a-barrel increase.

“With Saudi Arabia cutting production in July and likely higher domestic demand due to warmer temperatures, higher official prices aim to ensure lower crude exports next month,” said Giovanni Staunovo, a commodities analyst at UBS Group.

Opec+ is restricting output with the aim of prompting refiners to buy barrels out of storage. Too much oil in storage can act as a brake on prices, which most Opec+ countries would like to see higher to help balance budgets. Saudi Arabia adjusts its oil pricing to factors like demand from refiners and to calibrate how much crude it exports. Higher prices push buyers to look for cheaper marginal barrels.

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The voluntary Saudi cut will take its production to the lowest level in several years after a slide in crude prices. Energy Minister Prince Abdulaziz bin Salman said the kingdom would review that extra cut on a monthly basis, leaving open how long it will remain in place.

Aramco sells about 60 per cent of its crude shipments to Asia, most of them under long-term contracts, pricing for which is reviewed each month. China, Japan, South Korea and India are the biggest buyers. BLOOMBERG