In a surprising move following the decision by OPEC+ to cut daily output by over 1 million barrels, Saudi Arabia has increased its official selling prices for all its oil sales to Asian customers in May. State-owned Saudi Aramco raised the price of its flagship Arab Light crude to Asia by 30 cents per barrel, marking the third consecutive monthly price increase.
Traders who were surveyed before the OPEC+ decision expected Arab Light prices to fall by 43 cents per barrel. However, Saudi Arabia’s decision to increase its official prices has prompted many banks to raise their price forecasts, causing oil prices to rally by as much as 8.4% on Monday, marking the most significant increase in over a year.
Saudi Aramco can control the overall volume of its monthly oil exports by setting its official prices relative to competing suppliers or by deciding how much of each grade to supply to each customer through the allocation process. The company sells about 60% of its crude shipments to Asia, with China, Japan, South Korea, and India as the largest buyers.
Traders and refiners have been anticipating the release of Saudi official prices since the beginning of the week, expecting an increase. However, some buyers are also concerned about potential cuts in their cargo liftings from Aramco, or allocations, causing them to begin contacting non-OPEC+ suppliers for replacement or alternative supplies.
Saudi Aramco’s pricing decisions often influence other Gulf producers such as Iraq and Kuwait. This hike in official prices for Asian customers in May has surprised traders and prompted price forecasts, indicating the continued influence of Saudi Arabia on global oil markets.