Interesting moves are being made on the global energy chessboard.
In an unexpected move, Saudi Arabia announced it would slash its official selling prices (OSPs) for oil exports to Asia in October. The price cut was more than expected.
Saudi Aramco, the state-controlled oil giant, said in a statement on Sept. 5 that the official selling price for its benchmark Arab Light crude oil for delivery to Asia would be lowered by US$1.30 a barrel to a premium of US$1.70 a barrel over the average of Oman and Dubai crude prices.
This was a much deeper price cut than the market anticipated. Prior to the announcement, a Reuters survey of refiners in Asia forecast a reduction of just 20 to 40 U.S. cents a barrel in the official selling price for Arab Light.
The pricing of Saudi crude generally sets the trend for the pricing for Asia by other Persian Gulf oil producers such as the United Arab Emirates (U.A.E.), Kuwait, Iraq and Iran.
The pricing by Saudi Aramco affects as much as 12 million barrels per day (bpd) of Middle Eastern crude oil grades going to Asia, reported Tsvetana Paraskova in a piece in oilprice.com.
Various reasons are being cited for the Saudi decision.
While the Organization of Petroleum Exporting Countries and their allies in OPEC+ have begun easing output, the Asian fuel demand is largely tepid.
With its August purchases dropping to 9.51 million barrels per day (bpd) from 9.75 million in July, China, the world’s largest crude buyer, remained the weak spot in the entire chain. And all this was happening when Saudi Arabia was vying to keep and boost its market share in Asia, the world’s top oil importing region.
In the meantime, question marks began resurfacing about global oil demand in the coming months. In its latest monthly short-term energy outlook, the U.S. Energy Information Administration (EIA) expects the global crude demand to grow by five million bpd this year and not the 5.3 million bpd forecast in its report last month.
Given the increased uncertainty with the COVID-19 Delta variant, OPEC is also expected to revise down its forecasts for global oil demand in 2022, two OPEC+ sources told Reuters on Friday.
OPEC is scheduled to release its Monthly Oil Market Report on Monday. It could cut its oil demand estimates for next year, after keeping them unchanged in the two previous reports, Reuters reported. “OPEC may review the figures again for the upcoming monthly report,” one source told Reuters.
Thanks to massive stimulus packages to raise economic growth and the expectation that the COVID-19 pandemic would be under control – courtesy of the global vaccination campaign – OPEC forecast in its August Monthly Oil Market Report that the global demand would average 99.9 million bpd over the next few months and exceed 100 million bpd in the second half of 2022.
This was a more optimistic view on global oil demand than that taken by the International Energy Agency (IEA). In its August monthly report, IEA warned that new mobility restrictions in Asia to fight the Delta variant would slow global oil demand growth in the second half of 2021. This year’s oil market deficit would then turn into surplus, IEA said.
OPEC now faces the same possibility.
And when China took the unusual step of releasing crude oil from its strategic reserve for the first time, with the explicit aim of lowering prices, it may not have been totally oblivious to the crude market trends and the possibility of a weakening market.
So the immediate crude oil market future is under some cloud.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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