LAUNCESTON, (Australia): The jump in Saudi Arabia’s crude oil prices for its Asian customers is a real world example of how the Russian invasion of Ukraine is starting to force a realignment of global oil markets.
Saudi Aramco, the state-controlled producer, raised its official selling price (OSP) for its flagship Arab Light crude for Asian refiners to a record premium of $9.35 a barrel above the Oman/Dubai regional benchmark.
An increase in the OSP had been anticipated, with a Reuters survey of seven refiners estimating the price would rise to a premium of between $10.70 and $11.90.
This means the actual increase from April’s premium of $5.90 to May’s $9.35 was somewhat below market expectations, but still highlights that refiners in Asia are going to be paying considerably more for Middle East crudes.
There are several factors at work driving the increase in Saudi OSPs, which tend to set the trend for price movements by other major Middle East exporters.
Spot premiums for Middle East grades hit all-time highs in March, a sign that usually points to higher OSPs as it signals strong demand from refiners. However, these have slumped in recent trading sessions as physical traders mulled the impact of more crude being released from the strategic reserves of major importing nations, led by the US commitment to supply 180 million barrels over a six-month period.
Another factor driving the increase in the OSPs for May cargoes are the strong margins being enjoyed by Asian refiners, especially for middle distillates, such as diesel.
Robust refinery profits are also usually a trigger for producers to raise crude prices, and currently a Singapore refinery processing Dubai crude is making a margin of about $18.45 a barrel, which is more than three times the 365-day moving average of $5.03.