Saudis raise oil prices for U.S., Asian shipments after output cut

By Anthony Di Paola on 1/7/2021

(Bloomberg) --Saudi Arabia raised pricing for oil customers in Asia and the U.S. after its shock move this week to cut output sent crude prices climbing.

A day after its unilateral decision during an OPEC+ meeting to slash oil production, the kingdom opted to increase prices for all grades shipped to the two regions in February.

State producer Saudi Aramco on Wednesday raised its flagship Arab Light oil to Asia, its biggest market, to $1 above the benchmark used by the company. That’s the highest level since August.

The increase of 70 cents from January’s shipments was more than the market had expected ahead of the OPEC+ gathering. The median estimate was for a hike of 40 cents, according to a Bloomberg survey of five traders in late December. All U.S. grades were raised by 20 cents.

Aramco lowered prices for the northwest European and Mediterranean regions, where energy demand has been hit by new coronavirus lockdowns over the past month.

It’s the second straight monthly increase for oil that the world’s biggest exporter sells to its main market. Some Asian nations have experienced higher energy demand in recent weeks, thanks in part to a cold winter.

The move coincides with an historic drop in Saudi oil shipments to the U.S. For the first time in 35 years, America didn’t import any of the kingdom’s crude last week. Cutting shipments to the U.S. is the quickest way for Saudi Arabia to signal to the wider market that it’s tightening supply because the U.S. reports import and oil storage data weekly. Other big energy consumers, like China, publish such information less frequently.

Saudi Caution

The Saudis’ reduction of output by 1 million barrels a day next month and in March is set to further restrict the flow of barrels to Asia and has already spurred higher crude prices. Brent crude has gained more than 7% in the past three days and is near $55 a barrel, its highest level since February.

Even with the output cuts, the kingdom will pump about 8.12 million barrels a day in February and March, more than twice the level of Iraq, the OPEC’s second-largest producer.

The Saudi production curbs -- which come on top of those Riyadh was already making as part of OPEC+’s attempt to bolster prices -- will end in April, Energy Minister Prince Abdulaziz bin Salman told Bloomberg Television on Wednesday.

“We gave the oil industry a wonderful present and a wonderful surprise,” he said. “We’re extending support and help to the industry.”

The Organization of Petroleum Exporting Countries and its allies such as Russia were split at their meeting. Moscow proposed the group move ahead with plans to add 500,000 barrels a day of supply next month, while Riyadh and most other members were more cautious, pointing to the rising number of coronavirus infections globally.

Ultimately, Russia and Kazakhstan were allowed small increases in production, while all others aside from Saudi Arabia will hold theirs steady.

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