07.09.202112:20 Forex Analysis & Reviews: Saudi Arabia reduces oil prices

To increase oil sales to Asia, Saudi Arabia has lowered oil prices for all its grades. The increase in official selling prices for three months has caused oil refiners to suffer.

But considering the fact that Brent crude oil has risen in price by 40% this year, OPEC + believes that demand is already large enough to increase production, and by the end of the year, there will be a global deficit. This indicates an increase in competition. Accordingly, Saudi Arabia, which practices the sale of its oil under long-term contracts, will have to lower prices; otherwise, it risks alienating consumers with too expensive oil.

According to the statement, Aramco reduces the price of Arab Light oil by $ 1.30 per barrel - this is the main grade of oil and is $ 1.70 more than the regional benchmark. Based on the survey of traders and refiners in Asia last week, it was assumed that Aramco would reduce the selling price of this grade of oil by about 60 cents per barrel.

Refiners in Asia, Aramco's largest customers, were surprised by the scale of the cut. Buyers say that the decline in prices indicates that the Saudis are trying to compete with other manufacturers and take away market share from competitors.

Refineries suffered as fluctuations in demand led to lower profits from refining oil into fuels such as gasoline and diesel. Saudi Arabia sends more than 60% of its crude oil exports to Asia to major producers such as Japan, China, India, and South Korea.

However, Aramco keeps October prices unchanged for the US and Northwest Europe. It does not plan to increase sales for America, since this country uses strategic reserves. Oil refining facilities on the Gulf Coast in the United States are closed due to Hurricane Ida, which destroyed the area.

As for buyers in the Mediterranean region, Aramco is cutting prices for all varieties by 10 cents a barrel.

In September, OPEC+ decided to continue canceling the supply cuts implemented last year to support prices. The Organization of the Petroleum Exporting Countries and partners are cautiously moving towards the return of oil to the market.

It can be recalled that in July, the group agreed to increase production by 400,000 barrels per day per month starting in August to reverse the production cut next year. The demand has improved from last year and the reduction in OPEC+ prices helped support the markets: Brent crude oil was trading at about $ 73 per barrel last week.