The price of Brent crude soared Thursday after Saudi Arabia stepped in to prop up the recovery in the energy market by raising crude prices for its customers worldwide. Saudi Aramco increased pricing for most of its grades for shipment in June.
Few weeks after launching an unprecedented price war that crashed oil price, Saudi Arabia is now signalling it will “do whatever it takes” to support an oil price recovery.
“The price increase suggests Saudi Arabia will not just cut their production as part of the OPEC deal, but also reduce their crude exports by making them more expensive,” Giovanni Staunovo, commodity analyst at UBS Group AG, said in a note.
Saudi Arabia’s state oil giant Aramco raised the June price for its Arab light crude oil to Asia by $1.40 a barrel from May, setting it at a discount of $5.90 to the Oman/Dubai average, according to a document seen by BusinessDay.
The decision to increase price led to Brent gaining as much as 7 percent, rising by more than $2/barrel, and was last trading at $31.60 before sliding back to $30.
By increasing pricing for Asia, Aramco is also indicating it sees demand beginning to recover in its largest regional market. The company is reversing three consecutive months of reductions in pricing for the world’s largest oil-consuming region.
“The price increase suggests Saudi Arabia will not just cut their production as part of the OPEC deal, but also reduce their crude exports by making them more expensive,” Giovanni Staunovo, commodity analyst at UBS Group AG, said in a note.
The market expected the company to reduce its official pricing by $2.50 a barrel, to a discount of $9.80, according to the median estimates in a Bloomberg survey of seven traders and refiners.
The positive sentiment in the energy market comes as the members of the Organisation of the Petroleum Exporting Countries (OPEC), as well as allied oil producers, started cutting oil output as a key oil agreement came into force on May 1.
The accord is set to wipe out nearly 10 million barrels per day from the overflowed market, while some countries beyond the agreement have also curbed production to help oil prices rebound.
Also, most market experts believed any continued rallies depend on the speed at which countries reopen their economies, and whether they see new outbreaks of the coronavirus, which could reverse any loosening of lockdowns.
Some countries in Europe and Asia, as well as some US states, have already slowly lifted some of the coronavirus-related restrictions, giving hope that the demand-supply gap may become smaller.
For Africa’s biggest oil-producing country, a rise in oil prices between $50 to $60 would allow the country to earn badly needed foreign exchange to carry out development projects.
The dangerous exposure of Nigeria to the crude oil price crash has taken a huge blow on the country’s ability to meet its revenue target for the revised budget and lead to more pressure and instability in the country’s foreign exchange market.
This development has not only threatened the financial stability of the 36 states heavily reliant on federal allocations to pay their bills but also significantly hampered the implementation of the federal budget, putting an already battered economy in worse shape.
