A Sour Outcome From OPEC for China's Futures

Here’s an indicator of what’s been driving the demand side of the oil market of late: Cargoes of Saudi Arabia’s main Arabian Light crude bound for Asia, which tend to be priced at a discount to Brent, last week reached their biggest premium to the European benchmark in six years.

The reason for this isn’t hard to discern. Gulf producers like the OPEC members meeting in Vienna on Friday can choose to send their cargoes east or west, and will raise prices to whichever market seems most likely to tolerate higher costs. In recent months, that’s been Asia, where (as we’ve written) demand has been surging. Should this week’s OPEC meeting end up with a boost to output driven by Saudi production, as many analysts expect, watch out for that dynamic reversing.