Saudi Aramco Increases Oil Pricing to Asia on Rise in Demand

  • Aramco also raises pricing to north-west Europe, Mediterranean
  • Move probably triggered by short-term tight market: NBD’s Bell

A Saudi Aramco oil facility in Saudi Arabia.

Photographer: Hassan Ammar/AFP via Getty Images

Saudi Arabia, the world’s largest crude exporter, raised pricing for December sales of all oil grades to Asia as it tries to take advantage of a brief increase in demand for Middle Eastern crude.

State-owned Saudi Arabian Oil Co., known as Saudi Aramco, increased its pricing for Arab Light crude to Asia by 90 cents a barrel, to a premium of 45 cents over the regional benchmark. The company had been expected to raise pricing for shipments of Arab Light by 85 cents a barrel, according to the median estimate of six refiners and traders in the region polled by Bloomberg.

Saudi Aramco also raised the pricing of all grades to northwest Europe, and all grades to the Mediterranean except Arab Heavy, which it left unchanged. It cut pricing of the Arab Heavy grade to the U.S. by 40 cents, and left the other grades unchanged.

The increase in Asian pricing was probably intended to take advantage of a backwardation in the Oman/Dubai benchmark price, where near-term prices are higher than longer-term futures prices, Edward Bell, a commodities analyst at Emirates NBD PJSC, said by phone from Dubai. “Generally that’s a reflection of a tighter market now than is expected two or three months down the line,” he said.

Record Output

Oil has gained about a quarter this year amid efforts by OPEC to limit production to reduce a global supply glut, which contributed to a drop in crude prices to about half their 2014 levels. Saudi Arabia boosted output to a record in July. Two months later, the Organization of Petroleum Exporting Countries ended a two-year, Saudi-led policy of letting members pump as much as possible to push higher-cost producers out of the market. OPEC aims at a Nov. 30 meeting in Vienna to allocate production quotas to its individual members.

Supply and demand will be in balance by the end of this year, helping to push prices higher in the first half of 2017, Amin Nasser, Aramco’s chief executive officer, said on Nov. 1 at a conference in Riyadh. Demand is set to grow on average by about 1.2 million barrels a day this year and next, Nasser said.

Middle Eastern producers are competing with cargoes from Latin America, North Africa and Russia for buyers in Asia, their largest market. Producers in the region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia, the benchmark is the average of Oman and Dubai oil grades.

— With assistance by Anthony Dipaola

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