Saudis Raise Oil Prices for Asia in Sign of Market Strength

(Bloomberg) -- Saudi Arabia raised pricing slightly for its flagship crude oil shipped to Asia, the first sign of strength in the physical market after a month and a half of weakness and falling refining margins.

The increase in November pricing marks a change for the world's biggest exporter, which pared prices in September and October as crude demand stagnated. It suggests the Saudis are confident that OPEC+ supply cuts will buoy the market even as the pandemic continues to crimp demand.

State oil producer Saudi Aramco raised pricing for Arab Light crude for Asia, its largest regional market, by 10 cents a barrel to 40 cents below the benchmark. Aramco had been expected to increase pricing for the grade by as much as 20 cents, according to a Bloomberg survey of traders and refiners in late September.

Refiners' profits from processing crude into fuels such as gasoline, diesel and jet fuel have tumbled this year amid worldwide lockdowns and travel bans.

“The market for refining has been grim,” said Mike Muller, head of Asia for Vitol Group, the biggest independent oil trader. “We have a big warning sign in terms of forward margins,” which look like they'll average below normal levels, he said in an interview with Dubai-based consultant Gulf Intelligence.

But in Asia, refining margins jumped at the end of September -- albeit from very low levels. That probably influenced Aramco's pricing decision, which came a day later than traders had expected.

Aramco also raised pricing for its other light grades to Asia, while keeping the cost of medium and heavy crudes unchanged. The company kept most pricing to the U.S. unchanged and cut all prices to the Mediterranean region. For Northwest Europe, it left light grades unchanged and reduced medium and heavy pricing.

Oil has rallied since April, with Brent crude roughly doubling on the back of output cuts by the OPEC+ alliance. Even so, the global benchmark fell on Wednesday, trading around $42 a barrel, down about 36% this year.

The Organization of Petroleum Exporting Countries and allies including Russia are to meet on Nov. 30-Dec. 1 to review policy on production. Saudi Energy Minister Prince Abdulaziz bin Salman has threatened to wrong-foot speculators who question the coalition's resolve to bolster prices. He promised last month that traders who bet on lower prices would be “ouching like hell.”

Saudi Arabia's pricing decision usually sets the tone for other Middle Eastern suppliers, including Iraq and the United Arab Emirates, the second- and third-largest producers in OPEC.

©2020 Bloomberg L.P.