Saudi Arabia Raises Crude Prices to Record High Amid Asian Import Diversification

Overall crude futures fell to a five-month low compared to pre-February levels following a larger-than-expected build-up in US crude inventories and OPEC's decision to boost production supply in August. However, Saudi Aramco raised prices for some of its top buyers including India, China, and Japan.

Saudi Arabia has set the price of September oil shipments for Asian buyers at a record high, amid rising demand and diversification by the region’s importers.

Saudi Aramco, the state-owned oil refiner, said that the September selling price of its flagship Arab Light to Asia would be $9.80 above the per barrel average set by the Oman and Dubai benchmarks.

The Arab Light price differential versus the ICE Brent for Asian buyers is almost more than double compared to the cost charged for European countries, and $3.65 higher than North American importers, Saudi Aramco's statement to the stock exchange showed.

In May, the price differential between the Middle East and Asian buyers was $9.35 per barrel, the highest ever recorded until Thursday's latest price hike.

Experts have identified several reasons behind Riyadh's decision to raise prices for Asian buyers, including an increase in demand and their import diversification.

"Demand for air turbine fuel increased following the end of COVID-induced lockdowns in the Asian region. Higher oil demand is also expected in other sectors," Anuj Gupta, vice president of IIFL Securities Ltd, told Sputnik.

On Wednesday, the OPEC+ group of oil-producing countries decided to boost production by 100,000 barrels per day (bpd) in September, a much slower uptick than the 648,000 bpd increases seen in July and August, respectively. However, Brent crude prices, which serve as a benchmark for Indian oil retailers, plummeted by 4 percent overnight and traded below $100 per barrel on Thursday.

Saudi Arabia currently supplies most of its oil to Asia, with China, India, and Japan buying the bulk of its light crude. However, this situation may be about to change.

"Saudi Arabia must have taken this step as many Asian countries, including India, are diversifying supplies away from it. Also, this is not just the price of crude, but terms like shipping and flexibility of contracts which producers can push back on if importers try to diversify their source of supply," Dr. Ravi Singh, vice president and research head of Share India Securities Ltd, told Sputnik.

However, there are trade limitations for Asian buyers that could stop them from diversifying their purchases away from Saudi Arabia.

Rameswar Teli, India's minister for petroleum and natural gas, said that his country spent $48 billion in crude oil imports between April and June 2022 on Thursday, almost half of the total amount it spent for 2019-20 previous to COVID-19. Last year, the crude import bill was $120 billion.

However, Singh hoped that an increase in prices by Saudi Arabia, India's third largest supplier, would not adversely impact India's crude import bills due to the rise in purchases of "discounted oil" from Russia over the last four months.

"India has been stepping up cheap Russian oil purchases in recent months despite sanctions from the West. India is also looking at diversifying crude oil sources for its needs from Latin American countries," Singh added.

Russia replaced Saudi Arabia as the country's second largest oil supplier in June. India is the world's third largest crude importer, which sources 65 percent of its total oil requirements from the Middle East.